Average headline inflation this year is likely to climb to 2 percent as the impact of El Niño continues to put upside pressure on food prices, based on a median forecast made by multilateral lenders, banking giants and think tanks.
Inflation forecasts for 2016 provided by BMI Research, Asian Development Bank (ADB), World Bank, Metrobank Research, Standard Chartered Bank, and ING Bank Manila ranged from 1.8 percent to 2.5 percent.
The 2 percent median forecast was higher than the 1.4 percent average headline inflation rate recorded in 2015. It also settled within the Bangko Sentral ng Pilipinas’ (BSP) 2 percent to 4 percent target range this year.
For April inflation, the official data for which will be released today (Thursday), analysts earlier in the week forecast a range of 1.1 percent to 1.7 percent, citing slightly higher utility and oil prices during the month.
Fitch-owned BMI said inflation is likely to average to 2.5 percent this year, as commodity prices are likely to remain muted over the course of 2016 and moderate the impact of higher food prices.
“Upside risks to inflation include the potential for food prices to embark on another leg higher. While food price inflation has fallen precipitously… our commodities team expects rice prices to begin picking up in the second half of 2016, as dry weather conditions emanating from El Nino continue to undermine supply conditions,” it explained.
El Nino could also push utility rates higher in the country as hydropower generation is curtailed by the continuing drought conditions across the country, BMI added.
However, it noted that these upside risks should be duly curtailed by subdued oil prices.
“Although our Oil and Gas team holds a relatively constructive view on Brent crude prices, with a forecasted range of $40 to $55 per barrel for the second half of 2016, such an outcome would still entail relatively flat energy prices versus the previous year, suggesting that even a rally from current levels is unlikely to give rise to a significant inflationary pulse,” it explained.
“Instead, we believe that inflation is likely to trend gradually upwards over the course of the year, settling near the lower bound of the BSP’s target range,” it added.
Manila-based multilateral lender ADB said inflation rate this year is likely to trend up to 2.3 percent mainly because of El Niño’s impact on food prices and utility rates.
“Drought from El Niño will likely raise food prices and utility rates, while peso depreciation and buoyant domestic demand will also contribute to inflation. The government has imported rice and expanded irrigation to mitigate the impact of El Niño,” it said.
Washington-based World Bank sees inflation averaging 2 percent, fueled by low oil prices that will continue to drive domestic consumption.
It too said a stronger El Niño could lead to higher food prices, especially if food imports are delayed.
Metrobank Research expects inflation movements to remain muted, averaging 2 percent, with possible upside pressure in the second half of the year due to base effects.
“Oil prices, though volatile for the past few weeks, are expected to tread at low levels as global oil supply remains stable at high levels since last year,” the research arm of Metropolitan Bank and Trust Co. said.
Banking giant Standard Chartered Bank expects inflation to rise only gradually to 1.8 percent in 2016, due to stable food and energy prices in the first half this year.
“Food inflation has been benign overall, with negative rice inflation offsetting double-digit vegetable inflation,” it said.
Providing the same view is ING Bank Manila, saying: “We are with the market in expecting a moderate increase in inflation for the rest of the year.”
In its first quarter inflation report, the 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.