BSP survey shows easing price increases

Published by rudy Date posted on February 16, 2009

A BANGKO Sentral ng Pilipinas (BSP) poll showed that private sector economists expect inflation to ease further and fall within its target for 2009 and 2010.

Economists from 12 financial institutions projected price increases to average between 2.1 percent and 7.5 percent this year.

For next year, they said inflation would dip to a range of 3.6 percent to 6.5 percent.

“The collapse in commodity prices, particularly food and oil, substantially influenced by the global economic slowdown, is expected to translate to relatively lower prices in 2009,” the BSP said.

“The lower inflation expectation also factors in the spillover effect of the slowdown in the domestic economy and base effects from very high consumer price index (CPI) levels in 2008,” it added.

The survey showed that the mean inflation forecast for this year stood at 4.5 percent while that for next year stood at 4.8 percent. Price increases averaged 9.3 percent last year, surging from 2.8 percent in 2007.

Survey respondents said upside risks to inflation include the peso depreciation and a possible increase in aggregate demand through an anticipated increase in the government’s budget deficit to help pump-prime the economy.

For 2011, the survey showed a mean inflation forecast of 4.6 percent; while forecasts for the first and second quarters this year stood at 6.8 percent and 4.1 percent, respectively.

The survey further showed a 26.7 percent chance that average inflation for 2009 could fall within 5.1 percent to 6.0 percent.

In a briefing on the fourth quarter inflation report, BSP Deputy Governor Diwa Guinigundo had said inflation is projected to fall to 1.3 percent in the third quarter and accelerate to 3.6 percent in the fourth quarter this year.

The decelerating path for inflation in 2009 was attributed to the decline in oil prices, lower than expected inflation out-turn for the fourth quarter last year, the base effects from the inflation up trend in the first three quarters last year and the impact of transport fare reductions.

The BSP targets a 2.5-percent to 4.5-percent inflation for this year and 3.5 percent to 5.5 percent for next year. Its forecast, however, stands at 3.9 percent and 4.7 percent for 2009 and 2010, respectively.

The BSP forecast inflation to decelerate to 7 percent in the first quarter this year, and to 3.5 percent in the second quarter.

Concerns over a prolonged and sharper economic downturn and sustained decline in oil demand by advanced economies have weighed down on international prices in the futures market.

Due to the declining trend in inflation, the BSP reduced its interest rates by 50 basis points last month, bringing its overnight borrowing and lending rates to 5 percent and 7 percent, respectively.

Guinigundo said domestic liquidity is expected to increase this year, higher than the central bank’s forecast of 13 percent to 14 percent, with the recent reduction of rates.

The BSP is expected to further cut its rates to offset weak economic growth as a result of lower remittances and exports growth.
— Maricel E. Burgonio, Manila Times

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