The Philippine headline inflation is seen to remain within the Bangko Sentral ng Pilipinas (BSP) target for the next three years.
In a report, Standard Chartered Bank (SCB) said that it expects inflation to remain manageable over the next three years, forecasting average inflation of 2.9 percent in 2013, down from the 3.1 percent earlier projected. It also said that inflation for 2014 and 2015 was projected at 3.9 percent and 3.5 percent, respectively.
“We have revised down our forecasts, as food inflation remains benign and we expect it to remain manageable over the next three years,” SCB economist Jeff Ng stated.
He said that the bank’s forecasts indicate that inflation will remain within the BSP’s inflation target bands of 3 percent to 5 percent in 2013 to 2014, and 2 percent to 4 percent in 2015.
“Our dovish inflation view is supported by the progress made in food security in the Philippines. Other important inflation drivers, housing and energy, are likely to remain subdued over the next few quarters,” he added.
The bank also said that food inflation may pose a smaller upside risk to headline inflation, given the improving food security in recent years. Ng noted that food inflation has been the primary driver of headline inflation for the past five years, accounting for 36.3 percent of the consumer price index basket.
He said that favorable food inflation has resulted in benign inflation in recent years, even during periods of above-trend growth.
“We expect food inflation to bottom out in 2014 owing to base effects, but to remain close to headline inflation levels. Benign food inflation is likely to ensure that headline inflation remains a secondary concern for policy makers,” he said.
In terms of housing inflation, the SCB saw it to remain modest, as solid gross domestic product growth to support rental market inflation in the coming years.
Meanwhile, energy inflation, which comprises electricity, gas and fuel, was expected to rebound modestly from the fourth quarter because of the very low base in recent months
“We see higher upside risks to energy prices. Domestic energy inflation tends to lag Brent crude price increases by around three months,” Ng added.
However, the report also warned that risks from energy and alcohol/tobacco may result to upside inflation. The bank expects sin taxes to create inflationary pressure in the coming years “similar to those seen at the start of 2013, when the taxes were first implemented.”
“Base effects could trigger higher energy inflation in 2014. Serious natural disasters could also still pose a threat to food security, although the Philippines regularly experiences tropical storms, earthquakes and volcanic eruptions,” Ng said.
Mayvelin U. Caraballo