Inflation forecast hiked to 3.9%

MANILA, Philippines — Barcelona-based think tank FocusEconomics raised its 2021 inflation forecast for the Philippines to 3.9 percent from the original target of 3.4 percent.

This is the second time the think tank raised its inflation forecast after jacking up its projection from 3.1 percent in February.

Alexandros Petropoulos, junior economist at FocusEconomics, said the think tank also raised its inflation forecast for 2022 to 3.1 percent from last month’s projection of three percent.

Latest data from the Philippine Statistics Authority (PSA) showed inflation eased to 4.5 percent in March after quickening for five straight months to a fresh two-year high of 4.7 percent in February.

Inflation averaged 4.5 percent from January to March as it continues to breach the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP) for 2021 and 2022.

Core inflation, which excludes selected food and energy items, averaged 3.5 percent in the first quarter after easing to three percent in March from 3.5 percent in February.

Based on its latest assessment, the Monetary Board raised its inflation forecasts to 4.2 percent this year and to 2.8 percent next year.

The BSP said inflation would remain elevated until the third quarter before easing back to its two to four percent target by the fourth quarter.

The central bank said the elevated inflation caused by supply side shocks is not likely to warrant any monetary response from the BSP as of the moment.

Higher food prices, particularly meat, has been caused by weather related disturbances as well as African swine fever (ASF).

BSP Deputy Governor Francisco Dakila Jr. earlier said the latest inflation path is below five percent for the entire year despite staying above the high end of the two to four percent target until the third quarter.

“At this moment, there is really no evidence of any spillovers to other commodities apart from those that are subject to the supply shocks. And these commodities are few key food items including meat in particular,” Dakila said.

The BSP also decided to keep an accommodative stance by maintaining interest rates at record lows last March 25 to help speed up the recovery from the pandemic-induced recession amid the resurgence of COVID-19 cases.

“It should not really trigger an earlier than planned exit from the policy stimulus. What is important is the non-monetary measures that are being coordinated by the BSP with other government agencies,” Dakila said.