Analysts polled by central bank put 2018 inflation beyond target
MANILA, Philippines — Overall increase in prices of widely used goods and services will likely overshoot the government’s inflation target this year due to “key upside risks,” private sector economists polled by the Bangko Sentral ng Pilipinas last March said.
Using 2012 as base year, a central bank survey of 27 economists, 17 of whom provided estimates, yielded a 4.1 percent mean inflation forecast for 2018. If realized, this would pierce the BSP’s 2-4 percent target for annual inflation.
Meanwhile, market experts expect inflation to hit 3.7 percent and 3.6 percent in 2019 and 2020, respectively, under the rebased index.
Inflationary pressures cited by the respondents include the implementation of the Duterte administration’s tax reform law that raised excise levies on fuel and cigarettes, among others, as well as higher and volatile global oil prices.
A possible US Fed rate hike might also stoke inflation, analysts said.
Based on the results of its poll, the BSP said economists believe there was a 40.3 percent probability that 2018 inflation would remain within target, while there was a 56.3 percent chance that inflation would rise between the 4.1-5.0 percent band.
For 2019, respondents assigned a 65.8-percent likelihood that inflation will fall within the 2-4 percent target range.
“On the other hand, the key downside risk to inflation was seen to emanate from the implementation of government programs that will balance off the upward pressures on inflation such as the conditional cash transfer, transport subsidies, and rice tariffication,” the central bank said.
“Meanwhile, inflation is anticipated to moderate, stabilize, and settle within the 2-4 percent target range in 2019 to 2020 as [the new tax law’s] inflationary impact tapers off,” it added.
Policy response
As anticipated, the BSP on March 22, left key rates unchanged, dashing expectations from a growing number of market watchers who call for a monetary policy tightening to tame building price pressures.
But early this month, the central bank said it was evaluating the appropriateness of a “measured policy response” after inflation, based on the 2012 consumer price index series, jumped 4.3 percent in March—the fastest pace in more than five years.
Inflation in the first quarter of 2018 averaged 3.8 percent, near the top end of the state’s target band. The BSP projects inflation to average 3.9 percent this year and moderate to 3 percent in 2019.
The Philippine Statistics Authority had announced that it would shift the base year for monthly consumer price index to 2012 from 2006 to reflect “economic, social and technological changes” that likely influenced consumption patterns.
Under the old base year, analysts surveyed by the central bank forecast inflation to hit 4.4 percent and 3.7 percent in 2018 and 2019, respectively.
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