Inflation forecasts cut for next 2 years

MANILA, Philippines — Private sector economists expect the prices of basic goods and services to grow at a slower pace this year before easing further in 2025 and 2026, according to the Bangko Sentral ng Pilipinas (BSP).

Based on the results of the BSP’s Survey of External Forecasters made from Aug. 8 to 13, analysts pegged their inflation forecasts at an average 3.5 percent this year, down from 3.7 percent in May.

The August 2024 survey round on private economists’ inflation expectations also showed a lower mean forecast of 3.1 percent from 3.5 percent for 2025 and 3.2 percent from 3.4 percent for 2026.

“Analysts’ forecasts continued to move closer to the midpoint of the target range. Risks to the inflation outlook are broadly balanced, with local inflation expected to trend lower for the rest of the year,” the BSP said in its latest Monetary Policy Report.

Inflation accelerated to six percent last year from 5.8 percent in 2022, which prompted the BSP to continue its tightening cycle until October 2023. The central bank hiked rates by a total of 450 basis points starting May 2022.

Headline inflation has since eased, averaging 3.6 percent from January to August, paving the way for the Monetary Board’s first rate cut in nearly four years.

During its meeting last month, the BSP cut the key interest rate by 25 basis points to 6.25 percent from an over 17-year high of 6.5 percent previously. Prior to the cut, the BSP kept its policy unchanged for six consecutive meetings since November 2023.

According to the BSP, downside risks to the inflation outlook are expected to stem largely from lower rice prices following the implementation of Executive Order 62, which lowered the tariff for imported rice to 15 percent from 35 percent.

Analysts also anticipate downward inflationary pressures from a stronger peso against the US dollar as well as favorable base effects.

“Meanwhile, the main upside risk is expected to arise from second-round effects, such as higher electricity costs brought about by a potential uptick in oil prices amid geopolitical conflicts,” the BSP said.

The survey also showed that most analysts expect the BSP to lower the key interest rate by 25 basis points in the third quarter and another 25 basis points in the fourth quarter.

The BSP is seen to cut the key rate by a cumulative 50 to 250 basis points next year, with additional cuts of up to 100 basis points by the end of 2026.