Private-sector economists see tamer ‘09 inflation

Private sector economists expect price increases to slow this year but noted upside risks to inflation, particularly from the peso’s depreciation and a possible recovery of major economies, the Bangko Sentral ng Pilipinas (BSP) said.

In its survey, the BSP said private sector economists projected inflation to average within the range of 3.1 percent to 4 percent for the whole year.

This is within the BSP’s inflation target of 2.5 percent to 4.5 percent.

“Some analysts noted that there were upside risks to inflation. These include the peso depreciation and conditions that could increase demand, including a possible early recovery in some regional economies such as China, ample liquidity in the global system, and various economic stimulus activities worldwide,” the BSP said.

“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,” it added.

From 6.9 percent in the first quarter, poll respondents projected inflation to decline to 3.9 percent in the second quarter and to bottom out to 1.7 percent in the third quarter this year.

Price increases averaged at a slower 4.8 percent last month from 6.4 percent in March, mainly on lower upticks for food items, such as rice, meat and miscellaneous items. However, services inflation went up because of higher pump prices of petroleum products.

The BSP said the tamer inflation outlook reflects the moderation of economic activity, the prospects of reduced pressures form world commodity prices, and the impact of transport fare reductions in the first quarter.

The International Monetary Fund (IMF) had said the global economy would contract by 1.3 percent this year and grow by 1.9 percent next year.

It said commodity demand prospects are likely to be the key driver of future prices given that inventories are rising and current consumption is below production.

“It implies that the risks to global commodity prices are also tilted broadly to the downside,” the BSP said in its First Quarter Inflation Report.

For next year, private sector economists projected inflation to pick up to an average of 4.9 percent as economic activity and world oil demand recovery gradually. This is within the BSP’s inflation target of 3.5 percent to 5.5 percent for 2010.

Domestic monetary easing is also expected to impact next year, after the BSP had reduced its key policy rates by 150 basis points since December last year.

Its overnight borrowing and lending rates now stand at 4.5 percent and 6.5 percent, respectively.

The continued favorable inflation outlook provides scope for policy flexibility to support the financial system and economic growth, the BSP said, adding ample liquidity has provided fundamental support to the economy’s growth requirements amid difficult economic conditions.

The country’s money supply grew at a higher rate of 15.6 percent in March from 14.6 percent in February due to the increase of credit to the public and private sectors.

The BSP conducted the survey of economists from 16 banks and think tank groups in March. –Maricel E. Burgonio, Senior Reporter, Manila Times