Private economists cut 2010 inflation forecast

MANILA, Philippines – Private economists lowered their inflation forecasts for this year as fiscal concerns in Europe is expected to temper inflationary pressures but expect consumer prices to pick up in 2011 and 2012 on the back of upside risks, a survey conducted by the Bangko Sentral ng Pilipinas (BSP) showed.

BSP Assistant Governor Cyd Tuano-Amador told reporters that private economists expect this year’s inflation to average 4.5 percent instead of the previous quarter’s forecast of 4.7 percent.

Amador pointed out that analysts noted that fiscal concerns in the Eurozone area, which could derail the global economic recovery and lower commodity prices, will temper inflationary pressures.

However, she said private economists see next year’s inflation higher at 4.8 percent from the previous quarter’s estimate of 4.6 percent and 5.3 percent for 2012.

“The mean inflation forecast for 2010 was lower at 4.5 percent from 4.7 percent in the previous quarter. For 2011, the average inflation forecast was higher at 4.8 percent from 4.6 percent. For 2012, the mean inflation forecast was at 5.3 percent,” she added.

The Metrobank Group of taipan George SK Ty, HSBC, and think tank PEP see inflation averaging 4.7 percent this year followed by Deutsche Bank with 4.5 percent, Banco de Oro of retail king Henry Sy with 4.3 percent, and RCBC of Amb. Alfonso Yuchengco with 4.2 percent to 4.4 percent.

For next year, the survey showed that Deutsche Bank expect inflation to average 5.5 percent followed by Metrobank with 5.3 percent, RCBC with a range of four percent to five percent, HSBC with 4.6 percent, and Banco de Oro with four percent.

According to Amador, the BSP’s survey of private economists expects inflation to remain within the target ranges for 2010 and 2011.

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 until 2014.

The central bank’s Monetary Board, however, has lowered its inflation forecast last July 15 to four percent instead of 4.7 percent this year and to three percent instead of 3.6 percent next year on the back of lower oil prices, steady commodity prices as well as lower than expected inflation last May and June.

However, monetary authorities see higher inflation with the impending MRT and LRT fare hike, increase in toll fees in the Northern Luzon as well as Southern Luzon expressways as well as the possibility of the higher rice prices with the impending removal of subsidy extended to ailing National Food Authority (NFA).

BSP Deputy Governor Diwa Guinigundo said earlier inflation would average about 4.37 pecent this year and 4.24 percent next year if the upside risks including higher rice prices, increase in toll fees, and public transport fare hike are factored in.

The possible increase in the price of NFA rice to P28 per kilo from P25 per kilo would translate to a 0.21 percent rise in inflation this year and 0.86 percent next year while the P0.60 per kilometer hike in toll fees in NLEX and SLEX would translate to a 0.10 percent rise in inflation this year and 0.27 percent next year.

Furthermore, the impending hike in MRT fare to P25 from the current P15 and LRT fare to P23 from the current P17 would result to higher inflation of between 0.03 percent and 0.06 percent this year and between 0.06 percent to 0.11 percent next year.

In all, the upside risk would result to a 0.37 percent rise in inflation this year and 1.24 percent next year.

Latest data from the National Statistics Office (NSO) showed that inflation average eased to 4.2 percent in the first six months of the year from five percent in the same period last year. This after inflation slowed down to its slowest pace in seven months as it averaged 3.9 percent in June from 4.3 percent in May.

The BSP has kept its key policy rates at record lows since July last year but has lifted almost all of the liquidity enhancing measures adopted since November of 2008 to cushion the impact of the global financial crisis on the domestic economy. –Lawrence Agcaoili (The Philippine Star)