Economists see higher inflation rate this year

MANILA, Philippines – Private economists see a marginally higher inflation rate this year and next year due to stronger-than-expected economic growth in the first quarter as well as the slight increase in the pump prices of petroluem products as well as commodity prices, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

The BSP conducted a survey among private sector economists and analysts for April and the results showed that inflation expectations are marginally higher at 4.8 percent instead of 4.7 percent this year and at 4.9 percent instead of 4.6 percent for next year.

“Results of the BSP’s survey of private economists for April 2010 yielded a marginally higher but within-target inflation forecast of 4.8 percent for 2010 from 4.7 percent in the previous month. For 2010, the mean inflation forecast was also higher at 4.9 percent from 4.6 percent,” the BSP said.

Banks surveyed by the central bank included Deutsche Bank AG, HSBC, Metrobank Group, RCBC, Standard Chartered Bank, ATR Kim Eng, and Banco de Oro.

Monetary authorities said surveys continued to indicate well-contained inflation expectations over the policy horizon.

The BSP has set an inflation target of between 3.5 percent and 5.5 percent this year as well as between three percent and five percent for next year.

The central bank’s Monetary Board lowered its inflation forecasts for this year and next year in light of the reduction of power costs, lower oil prices, steady commodity prices, moderate liquidity growth, and the continued strengthening of the peso against the dollar.

The policy-setting body decided to lower its inflation forecast last June 3 to 4.7 percent instead of 5.1 percent this year and to 3.6 percent instead of 3.7 percent next year

It would be recalled that the policy-setting body decided to raise its inflation forecast to 5.1 percent instead of 4.64 percent this year and 3.7 percent instead of 3.45 percent next year last April 22 after taking into consideration a possible wage increase and a transport fare hike.

However, the board’s assessment took note of the lower energy costs, lower oil prices, stable commodity prices, moderate liquidity growth, and stronger peso.

Liquidity growth has started to ease over the past few months in light of the phasing out of several liquidity enhancing measures that were implemented way back in November of 2008 to cushion the impact of the global financial crisis on the domestic economy.

Latest data showed that money supply or domestic liquidity posted a double-digit growth of 10.3 percent to P3.894 trillion as of end-March from P3.53 trillion in the same period last year. M3 is the amount of money circulating in the domestic economy. At a time when the economy is booming and money supply is expanding rapidly, the central bank would normally step in to mop-up in order to ensure that inflation would not surge.

Crisis-related measures that were phased out included the increase in the rate on a short-term lending facility to four percent from 3.5 percent as well as the reduction of the peso rediscounting budget to P40 billion and further to pre-crisis level of P20 billion from P60 billion. –Lawrence Agcaoili (The Philippine Star)