ECONOMISTS surveyed by the Bangko Sentral ng Pilipinas (BSP) expect inflation to settle at 3.3 percent this year, citing downward pressures from lower global oil prices, electricity rates, and uncertainty about the global economy.
The consensus was higher than the Bangko Sentral’s forecast of 3.1 percent, a central bank report released over the weekend showed. It also noted a high probability that inflation would stay within the 2 percent to 4 percent target for the year.
The 2017 forecast would be the fastest yearly average inflation rate in three years since it hit 4.1 percent in 2014.
The survey was done in June, according to the BSP Second Quarter Inflation Report.
“Analysts attributed their lower 2017 inflation forecast to the following: slower rate of increase in global oil prices as increased production of shale oil in the US counteracted the supply cuts agreed upon by the Organization of Petroleum Exporting Countries (OPEC) members; lower electricity rates in June 2017 which reflected Meralco’s refund to customers; and lingering uncertainty over the prospects of the global economy,” according to the report.
The average price of Dubai crude declined 6.3 percent in the second quarter to below $50 per barrel, due to concerns that the OPEC‐led production cuts would be insufficient to draw down the global oil surplus.
Overall electricity rates in the Manila Electric Co. franchise area increased in the second quarter due to higher generation costs. The average generation charge went up by P0.31 per kilowatt hour (kWh) to P4.61 per kWh from P4.31 per kWh in first quarter.
“Meanwhile, the key upside risks to inflation outlook were seen to emanate from the depreciation of the peso, proposed tax reform (i.e., fuel and vehicle excise taxes), government spending on infrastructure, transport fare hike, base effects, adverse weather conditions in the latter part of 2017, another Fed rate hike in the second half of 2017, and US protectionism,” the report said.
The peso depreciated against the US dollar by 1.5 percent to P50.47:$1 as of end-June, in contrast to most Asian currencies which strengthened during the same period.
The House of Representatives has approved House Bill 5636 or the Tax Reform for Acceleration and Inclusion bill on May 31. The package consists of a reduction in personal income taxes, higher excise tax on petroleum products, higher automobile tax, and higher tax on sugar‐sweetened beverages. It also seeks to expand the value-added tax base and a uniform donor and estate tax.
The government targets to spend P847 billion this year on infrastructure projects, including small-, medium- and large-scale ventures to meet infrastructure spending-to-gross domestic product ratio of 5.3 percent.
Last month, the Federal Reserve raised the fed funds rate by 25 basis points to 1 percent to 1.25 percent, and the Federal Open Market Committee expected that US economic conditions will evolve in a manner that would warrant gradual increases in the federal funds rate.
Based on the probability distribution of the forecasts by 24 out of the 30 respondents, the BSP survey noted a 90.3 percent chance that the average inflation rate will fall within 2 percent to 4 percent.
For 2018, the economists gave a mean inflation forecast of 3.4 percent—faster than the 3 percent BSP estimate—compared with 3.5 percent in the previous survey.
Respondents to the survey were economists from Al-Amanah Islamic Bank, ANZ, Asia ING, Banco de Oro, Bangkok Bank, Bank of Commerce, Bank of China, Bank of the Philippine Islands, Barclays, Chinabank, Citibank, CTBC Bank, Deutsche Bank, Eastwest Bank, Global Source, IDEA, Korea Exchange Bank, Land Bank of the Philippines, Maybank, Maybank-ATR KimEng, Metrobank, Multinational Investment Bank, Mizuho, Nomura, Philippine Equity Partners, Rizal Commercial Banking Corp., Robinsons Bank, Security Bank, Standard Chartered, UBS and Union Bank.