Economists lower inflation forecast to 4% this year

MANILA, Philippines – Economists have lowered their projected average inflation rate for this year from 4.5 percent to four percent, falling within the government’s official target inflation of 3.5 to 5.5 percent.

The Bangko Sentral ng Pilipinas (BSP) conducted a survey among private sector economists and analysts in the first quarter of the year and the resuls showed that inflation expectations have improved.

Based on its survey of non-government analysts and economists, the BSP said the mean inflation forecast for 2009 was four percent, lower than the 4.5-percent forecast in the survey three months previously.

The BSP said its survey indicated an average forecast inflation rate of 3.9 percent in the second quarter and 1.7 percent in the third quarter.

For 2010, the BSP said the average inflation forecast was relatively stable at 4.9 percent (from 4.8 percent a quarter ago).

“Inflationary pressures are expected to be dampened by soft global commodity prices owing to the severe economic slowdown and continued lack of demand-pull pressures,” the BSP said.

According to the BSP, most economists expect strong base effects from very high consumer price index (CPI) levels in 2008 when the average rate peaked at over 12 percent in the third quarter.

“Meanwhile, some analysts noted that there were upside risks to inflation,” the BSP said in its First Quarter Inflation Report.

The BSP said these risks include the peso depreciation and conditions that could increase demand. There was also a possibility of early recovery in some regional economies such as China and ample liquidity in the global system as well as various economic stimulus activities worldwide.

For 2011, the BSP said its survey showed a mean inflation forecast of 4.9 percent (from 4.6 percent a quarter ago).

The BSP has not changed its forecast inflation for the year, saying that it still expects prices to increase by no more than 3.5 percent this year.

“The emerging baseline forecasts for 2009 indicate a decelerating and lower path for inflation, which could bottom out in the third quarter,” the BSP said.

According to the BSP, the tamer inflation outlook reflects the moderation in global and domestic economic activity, prospects of reduced pressures

from world commodity prices, and the impact of the transport fare reduction granted in the first quarter of the year.

“These factors also accounted for the downward shift in the 2010 inflation path,” the BSP said. “From 2009 levels, inflation for 2010 would likely pick up as economic activity and world oil demand recover gradually and the impact of the BSP’s monetary policy easing becomes more evident.”

The BSP said demand conditions continued to suggest overall softness. Business and consumer confidence remained cautious, capacity utilization declined, power sales waned, and unemployment increased. –Des Ferriols, Philippine Star