• Economists trim 2016, 2017 inflation forecasts

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    Private sector economists have cut their forecasts for inflation, noting lower global oil prices and domestic utility rates, but on the whole their outlook is slightly higher than the central bank’s expectation.

    In its fourth quarter inflation report, the Bangko Sentral ng Pilipinas (BSP) said the results of a December 2015 survey of economists “yielded lower mean inflation forecasts” for 2016 and 2017.

    For 2016, the mean forecast was 2.5 percent, down from the 2.7 percent recorded in September. The latest figure is a slightly higher than the 1.4 percent the central bank expects this year.

    Similarly, the average annual inflation forecast for 2017 was revised downward to 2.7 percent from 2.9 percent.

    The central bank said that based on the probability distribution of the forecasts provided by 20 out of 25 respondents, a 63.9-percent chance could be ascribed to average 2016 inflation settling within the 2 percent to 4 percent target range.

    “The analysts attributed their lower inflation expectations mainly to lower global oil prices and lower domestic utility rates,” the central bank said.

    According to the respondents, lower global oil prices and domestic utility rates are likely to outweigh the “upside risks brought by the El Niño phenomenon, typhoons, increased expenditure from the upcoming election, robust consumer spending during the holiday season, weakening of the domestic currency, and possible adjustments in utility rates.”

    The central bank has said that “inflation dynamics are expected to continue to gather momentum in 2016 but should remain manageable given well-contained inflation expectations over the policy horizon.”

    Moreover, it said latest baseline inflation forecasts for 2017 indicated that annual average inflation was also likely to settle within the 2-percent to 4-percent target range.

    “Nevertheless, the BSP’s review of current price trends suggests that there continue to be risks surrounding the inflation outlook,” it said.

    Upside risks to the forecasts include pending petitions for power rate adjustments and the impact of prolonged El Niño dry weather conditions on food prices and utility rates.

    The on-going weakness in the global economy is the key downside risk to inflation, it said.

    In 2015, full-year average inflation rate settled at 1.4 percent, which is below the government’s inflation range target of 2 percent to 4 percent.

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