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By Maricel E. Burgonio, Reporter
The Economist Intelligence Unit (EIU) has
revised upwards its inflation forecast for the Philippines this year
as global oil prices are expected to continue their climb until next
year.
In EIU’s recent report, inflation or increase
of prices is likely to reach 6.8 percent this year from the original
forecast of 5.8 percent on expectations that global oil prices will
remain high at $106 a barrel.
The think-tank said the main risk to inflation
forecast is the potential for an inflationary wage spiral caused by
workers demanding for higher wages, which companies will compensate
for by increasing the prices of goods.
“High international oil prices will have a
detrimental effect on the trade balance, although the strengthening
of the peso will partially curb the rising cost of oil imports in
local currency terms,” the report said
The Bangko Sentral ng Pilipinas has admitted
that inflation might surpass its target of 3 percent to 5 percent
for the year, and projected inflation in May could go up to 9.6
percent.
The peso, however, is expected to average P42. 4
this year driven by buoyant remittances from Filipinos working
overseas, which will drive the current account surplus, EIU said.
But added that high inflation will pull down the
country’s expansion this year, as measured in gross domestic
product (GDP) growth.
EIU said the country’s GDP growth is likely to
slow to 5.7 percent this year from 7.3 percent last year.
The projection is within the government’s
forecast of 5.7 percent to 6.5 percent growth this year.
The main driver of growth will be private
consumption, which is mainly supported by remittance inflows,
government spending, higher bank lending and low interest rate.
On the other hand, the pick-up in investments
will likely be held down by the country’s poor infrastructure and
business operating environment.
Despite expectations of a US economic slowdown,
which is projected to slump at 0.8 percent this year, and
vulnerability to risk aversion, EIU said the emerging economies are
likely to remain fairly strong.
“A global environment of greater risk aversion
could make investors increasingly wary of putting funds in emerging
markets such as the Philippines, and this could lead to higher
long-term rates,” EIU added.
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