BSP posts most accurate inflation projections in over a decade

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) delivered its most accurate inflation forecasts in over a decade in 2024, with its month-ahead projections outperforming private sector estimates and posting the lowest forecast error since 2010.

In its latest monetary policy report, the BSP said its month-ahead inflation forecasts “consistently outperformed private sector consensus estimates,” with forecast errors in 2024 “slightly lower than in 2023 and below the historical average since 2010.”

The mean absolute error of month-ahead forecasts dropped to 0.18 percentage points last year from 0.28 in 2023 and below the 0.21 historical average over the 2010–2024 period.

“Compared to 2023, forecast errors in 2024 were lower for both month- and year-ahead forecasts, reflecting a more accurate assessment of evolving price conditions amid easing supply pressures and reduced volatility,” the BSP said.

Inflation stayed within the central bank’s announced forecast range in 11 out of 12 months of 2024. The lone exception was September, when inflation settled at 1.9 percent, falling below the BSP’s forecast range of two to 2.8 percent “due to faster declines in the prices of vegetables and meat, along with lower transport costs.”

The BSP attributed the improved accuracy to better assessment of price conditions supported by “insights from the BSP’s complementary nowcasting models — the seasonal autoregressive integrated moving average with exogenous variables and the state-space models.”

By incorporating disaggregated price data on key commodities, these models “enhanced the assessment of inflation trends used in the BSP’s workhorse models.”

From 2010 to 2024, actual inflation landed within the BSP’s month-ahead forecast band 164 times out of 179 months, or 91.6 percent.

For annual forecasts, the central bank said its one-year-ahead baseline projections for 2024, presented to the Monetary Board and announced after each policy meeting, registered lower errors than those of the private sector. The BSP’s one-year-ahead baseline forecast for 2024, made in December 2023, was 3.7 percent, compared with the actual inflation rate of 3.2 percent.

However, the BSP noted that its two-year-ahead forecasts were initially lower than the actual outturn, citing the “underestimation of actual global crude oil and non-oil prices, as well as minimum wage adjustments,” while domestic output growth exceeded projections.

Benchmarking against peers, the BSP said its one-year-ahead inflation forecast error of 0.5 percentage point was “slightly below the average error of 0.7 percentage point among selected central banks” in the region.

Against the private sector and the International Monetary Fund, BSP forecasts also registered lower errors from 2011 to 2024.