2016 inflation to miss govt target – analysts

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HEADLINE inflation this year is likely to climb to 1.8 percent from its average of 1.3 percent in the first five months of the year, missing the Bangko Sentral ng Pilipinas’ (BSP) target range of 2 percent to 4 percent for 2016.

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Inflation forecasts for 2016 provided by Asian Development Bank (ADB), Metrobank Research, and Standard Chartered Bank ranged from 1.8 percent to 2 percent.

The 1.8 percent median forecast was higher than the 1.4 percent average headline inflation rate recorded in 2015, but below the BSP’s 2 percent to 4 percent target range this year.

TheADB sees inflation rate this year to average to 1.8 percent, a downward revision from its previous forecast of 2.3 percent.

“The adjustment is in line with a lower-than-expected result in the first five months as the impact of El Niño on food prices was less severe than anticipated,” the lender said in a supplement to its Asian Development Outlook report released on Monday.

“Rice imports augmented domestic supplies, helping to ease price pressures,” the ADB also said.

Banking giant Standard Chartered also expects average inflation to rise slightly to 1.8 percent through the rest of 2016.

“Food inflation is showing signs of picking up. Energy inflation may also bottom out as base effects fade, particularly if energy prices trend up further,” it said.

Metrobank Research, on the other hand, retained its average inflation forecast of 2 percent with a downward bias for 2016.

“The steady rise in inflation is likely to continue for the rest of the year, as rice enters its lean period this third quarter and weather disruptions continue to drive food prices higher,” it said.

The Research also said oil prices are still likely to remain at low levels given abundant supply.

The BSP sees inflation averaging 2 percent this year before picking up to 3.1 percent in 2017, deeming the overall balance of risks surrounding the inflation outlook to be broadly balanced.

With global oil prices recovering, the risk of second-round effects from lower oil prices is likely to recede in the period ahead, it said.

Nevertheless, slower global economic activity remains a key downside risk to the inflation outlook.

Given improved rainfall conditions and the shift to neutral weather conditions in the May to July period, the upside risks to food and utility prices due to El Niño are also seen to recede in the coming months, the central bank noted.

However, pending petitions for adjustments in electricity rates remain an upside risk to inflation, it said.

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