Inflation seen easing to 4 percent next year

MANILA, Philippines — Inflation may ease to within the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP) next year after breaching the range for two consecutive years, according to economists.

Dennis Lapid, officer-in-charge of the BSP’s Department of Economic Research (DER), said preliminary results of the central bank’s survey of external forecasters for November showed a lower mean inflation forecast of four percent from 4.1 percent for 2024.

Lapid said the survey showed unchanged mean inflation forecast for 2023 at 6.1 percent and for 2025 at 3.5 percent relative to the results of the October survey round.

“Analysts expect inflation to remain elevated, with risks to the inflation outlook still significantly skewed to the upside due mainly to supply-side shocks and second-round effects,” Lapid said.

For next year, Al-Amanah Islamic Bank has the highest inflation forecast (six percent), followed by Metropolitan Bank & Trust Co. (4.6 percent), Philippine National Bank and Korea Exchange Bank (4.5 percent), Deutsche Bank (4.4 percent) and Bank of Commerce (4.26 percent).

On the other hand, Philippine Equity Partners has the lowest inflation forecast for 2024 at 3.3 percent.

Based on the probability distribution of forecasts provided by 15 out of 21 respondent, Lapid said the probability that inflation would fall within the target band in 2024 increased to 63.7 percent from 48.9 percent in the October survey.

Inflation quickened to 5.8 percent last year from 3.9 percent in 2021 due to soaring global oil and food prices.

For 2023, Al-Amanah Islamic Bank also has the highest inflation forecast at 6.5 percent, while Standard Chartered Bank has the lowest at 5.9 percent.

On the other hand, Lapid added that analysts assigned a 100-percent probability that inflation would breach four percent in 2023 based on the probability distribution of the forecasts provided by 15 out of 21 respondents.

Inflation averaged 6.4 percent from January to October, still above the central bank’s two to four percent target. It eased significantly to 4.9 percent in October after quickening for two straight months to 5.3 percent in August and 6.1 percent in September from a year-low of 4.7 percent in July.

Lapid said analysts are expecting inflation to remain elevated but gradually tread the path toward the target range, with risks to the inflation outlook still significantly skewed to the upside due mainly to supply-side shocks and second-round effects.

He said the major upside risk to inflation emanate mainly from elevated prices of basic goods, particularly oil and food, including rice due to supply-side shocks attributed mainly to weather disturbances such as typhoons and El Niño, as well as the adverse impact of prolonged geopolitical tensions such as the Russia-Ukraine war and Israel-Hamas conflict.

Another upside risk, he explained, emanates from higher transport fare and utility rates.

On the other hand, Lapid said a few analysts cited the weaker-than-expected global economic growth, recent deceleration of global oil prices, and improvement in domestic food supply due to non-monetary government interventions on food importation as possible downside risks to the inflation outlook.

When it comes to monetary policy, Lapid said preliminary results of the survey showed that majority of the analysts expect the BSP to keep the interest rates at the current level until the first quarter of 2024.

By 2024, he added that most analysts anticipate the BSP to reduce the key policy rate by a range of 50 to 200 basis points and expect further easing of about 25 to 200 basis points in 2025.

Since May last year, the BSP has emerged as the most aggressive central bank in the region after raising interest rates by 450 basis points to tame inflation and stabilize the peso.