Inflation 2015 revised down to 2.3% from 2.7%

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Private economists in the country have revised their forecasts for inflation this year downward to reflect expectations that even international food prices will decline, a recent Bangko Sentral ng Pilipinas (BSP) survey showed.

The “results of the BSP’s survey of private sector economists for June 2015 yielded lower mean inflation forecasts for 2015 to 2017,” the central bank stated in its Inflation Report, Second Quarter 2015.

According to the BSP’s survey of private sector economists in June, the mean inflation forecast for 2015 eased to 2.3 percent from the 2.7 percent forecast for this year made by the economists in March, or four months ago.

Similarly, the average annual inflation forecasts for 2016 and 2017 were cut to 3.1 percent and 3 percent for the respective period, both from 3.3 percent previously.


The BSP noted that based on the probability distribution of the forecasts provided by the respondents, a 60.8 percent chance is ascribed to average inflation for 2015 settling within the 2.1 percent to 3 percent range.

Meanwhile, there is a 24.3 percent probability that average inflation for 2015 could be within 1 percent to 2 percent, it said.

“The analysts attributed their lower inflation expectations mainly to the decline [in]international food prices,” the BSP said.

According to the respondents, an expected fall in international food prices is likely to outweigh the impact of the El Niño phenomenon, power supply shortage, a possible US Federal interest rate hike, and election-related spending.

Headline inflation in the first six months of the year settled at an average 2.3 percent, or within the central bank’s target range of 2 percent to 4 percent.

For full-year 2015, the BSP expects headline inflation to average 2.1 percent.

Upside risks
In the second-quarter report, the central bank said pending petitions for power rate adjustments and the impact of stronger-than-expected El Niño dry weather conditions on food and utility prices present upside risks to inflation.

“The occurrence of stronger-than-expected El Niño weather disturbance could adversely impact domestic food supply,” it said.

The BSP expects weather conditions to manifest stronger-than-usual typhoons, which could impact negatively the planting season, ultimately posing a risk to food prices.

In addition, drier weather conditions as a result of the El Niño weather phenomenon could also adversely affect hydropower generation plants and raise the cost of electricity and water.

“The pending petition of Meralco on the December 2013 rate adjustment, which [continues to be]under the temporary restraining order of the Supreme Court, also continues to pose upside risk to the inflation outlook,” it said.

On the other hand, the BSP points out that slower global economic activity also poses downside risks.

“The possibility of slower global economic growth could imply weaker demand-related price pressures,” it said.

Financial market turbulence, particularly due to surprises in the US Federal Reserve policy actions, re-emergence of weakness in the euro area, geopolitical tensions in the Middle East, and a weaker-than-expected performance of China represent downside risks to the global growth prospects, the BSP added.

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