Economists cut inflation forecast


1.7% outlook for 2015 slightly higher than 1.6% expected by BSP
Private sector economists have cut their forecasts for inflation this year, noting lower food and oil prices, but on the whole their outlook is slightly higher than the Bangko Sentral ng Pilipinas’ (BSP) expectation.

Results of a September survey, the central bank said in its third quarter inflation report, “yielded lower mean inflation forecasts” not just for 2015 but also up to 2017.

For 2015, the private economists’ mean forecast was 1.7 percent, down significantly from the 2.3 held in June. The updated figure is a tad higher than the 1.6 percent the BSP expects this year.

Similarly, the average annual inflation forecasts for 2016 and 2017 were revised downward to 2.7 percent and 2.9 percent, respectively, from 3.1 percent and 3 percent previously.

The BSP said that based on the probability distribution of the forecasts provided by 23 out of 28 respondents, a 62.8 percent chance could be ascribed to average 2015 inflation settling within the 1 percent to 1.9 percent range.

There is a 19.8 percent probability that this year’s inflation will fall within the 2 percent to 4 percent target range, it added.

The rise in consumer prices is widely expected to be lower than the targeted 2 percent to 4 percent. The central bank itself last month cut its 2015 outlook to 1.6 percent from 1.8 percent, citing a drop in crude prices and the country’s slower than expected economic growth.

Inflation has been easing to record lows in recent months. If fell to 0.4 percent in September from 0.6 percent in August, and the Finance department has said it could hit 0.3 percent this month.

October inflation data will be released next week. Year to date, the rise in consumer prices has averaged 1.6 percent.

For 2016, meanwhile, the respondents said there was a 64.3-percent chance that inflation would fall within the target band.

“The analysts attributed their lower inflation expectations mainly to the lower international food and oil prices,” the BSP said.

According to the respondents, the lower international food and oil prices are likely to outweigh the “upside risks brought by the El Niño phenomenon, the possible Federal rate hike, increased expenditure from the upcoming election, holiday spendi ng, and the normalization of oil prices.”

The central bank has said that “inflation is projected to return gradually to a path consistent with the inflation target for 2016-2017.” It currently holds a 2.6 percent forecast for next year and 3 percent for 2017.

Upside risks to the forecasts for this year include the impact of the ongoing El Nino-caused dry spell on food and utility prices, pending petitions for power rate hikes and weakness in the global economy.

An even longer El Nino could affect the 2016-2017 outlook, the BSP said, along with potential exchange rate volatilities.


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