Economists trim 2016 inflation forecast to 1.9%

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Private sector economists have cut their forecast for inflation this year, predicting that lower global oil prices, slower global economic growth and moderate domestic utility rates will keep inflation below the central bank’s target for the year.

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

For 2016, the mean forecast was 1.9 percent, down from the 2.5 percent recorded in December. The latest figure is lower than the 2.1 percent the central bank expects this year.

Meanwhile, the average annual inflation forecast for 2017 was unchanged at 2.7 percent, lower than the 3.1 percent forecast of the BSP.


Mean inflation for 2018, on the other hand, was at 3 percent.

The survey noted that based on the probability distribution of the forecasts provided by 23 out of 28 respondents, there is a 46.3 percent chance that average inflation for 2016 will settle between the 1 percent to 1.99 percent range.

In addition, the respondents said there is a 46.4-percent chance that 2016 inflation rate will fall within the 2 percent to 4 percent target range.

“Analysts attributed their lower inflation expectations to continued low global oil prices, slower global economic growth, and lower domestic electricity rates,” the central bank said.

According to the respondents, these are likely to outweigh the upside risks brought by the El Niño phenomenon, increased government expenditures from the upcoming election, pending power rate adjustments, a possible rebound in oil prices, base effects in the consumer price index data, possible occurrence of La Niña in the latter part of 2016, and prospects of rising United States interest rates.

The central bank, for its part, said that inflation is expected to remain manageable over the policy horizon.

“The latest BSP baseline forecasts show that inflation could settle at the low-end of the government’s target range of 3.0 percent ± 1.0 percentage point for 2016 and approach the midpoint of the target in 2017,” it said.

Nevertheless, the BSP said its review of current price trends suggests that the risks surrounding the inflation outlook appear to be on the downside.

Slower global economic activity and potential second-round effects emanating from the sustained decline in global oil prices pose downside risks, it said.

Pending petitions for adjustments in electricity rates and the impact on food and utility prices of stronger-than-expected El Niño conditions are the upside risks to inflation, it added.

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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