Economists cut inflation forecast to 4.5%

MANILA, Philippines – Economists further slashed their inflation forecast for the Philippines this year on the back of fragile global economic growth due to weaker than expected expansion in advanced economies led by the US and the debt crisis in Europe, a survey conducted by the Bangko Sentral ng Pilipinas (BSP) showed.

Based on the BSP’s Private Sector Economists’ Inflation Forecast for the third quarter, inflation would average 4.5 percent instead of the previous quarter’s 4.7 percent prediction for 2011.

“Analysts noted that the recent easing of global commodity prices as well as expectations of slower global economic growth due to the eurozone’s continuing debt crisis and the weak US economy would dampen inflationary pressures going forward,” the BSP noted.

The survey showed that inflation this year and next would fall within the BSP target of three to five percent.

“Based on the probability distribution on the forecasts provided by 10 out of 13 respondents, there is a 73.3 percent chance that average inflation for 2011could settle within 4.1 percent to five percent in 2011,” it added.

The survey showed that Nomura of Japan sees inflation averaging 4.9 percent while Bank of Commerce, Bank of China, and Deutsche Bank expect growth in consumer prices to average 4.8 percent this year.

Banco de Oro projects inflation to average 4.78 percent, followed by UBS with 4.5 percent, while British banking giant Hong Kong and Shanghai Banking Corp., Asia ING and the Metrobank Group see inflation averaging 4.4 percent this year.

Rizal Commercial Banking Corp. expects inflation to range from 4.2 percent to 4.4 percent this year while ATR Kim Eng and Forecastweb project inflation to average 4.2 percent.

Meanwhile, results of the survey showed that the mean inflation forecast for 2012 remained at 4.3 percent as economists expect inflation to average four percent in the first quarter of next year.

For 2012, Bank of China and Nomura expect inflation hitting five percent, followed by BDO with 4.73 percent and Metrobank with 4.6 percent. HSBC sees inflation averaging 4.5 percent, followed by Asia ING with 4.4 percent, and ATR Kim Eng with 4.3 percent.

UBS and Forecastweb see inflation averaging four percent next year followed by MIB with 3.8 percent, Deutsche Bank with 3.7 percent, and RCBC with 3.1 to 3.4 percent.

Latest data from the National Statistics Office (NSO) showed that inflation kicked up to 5.3 percent in October from 4.6 percent in September, breaching the higher end of the BSP target, due to higher food and utility prices brought about by the supply disruptions caused by the weather disturbances last month.

Inflation last month brought the average to 4.5 percent from January to October, higher than the four percent average in the same period last year. Core inflation – which strips the volatile food and fuel items -averaged 3.6 percent in the first 10 months of the year.

Despite the uptick, monetary authorities remain confident that inflation would remain manageable over the near term despite the sovereign debt crisis in Europe as well as the economic uncertainty in the US.

“We continue to see inflation to be manageable over the policy horizon. Nevertheless we remain watchful of the impact of developments in Europe on investor sentiment and global aggregate demand. Even as we see current monetary policy settings appropriate, we have flexibility to make adjustments as necessary, especially to help preserve the growth objective,” BSP Governor Amando Tetangco Jr. said.

Last Oct. 20, the BSP’s Monetary Board retained the central bank’s inflation forecast of 4.46 percent for this year but lowered the forecasts for 2012 to 3.05 percent from 3.4 percent and for 2013 to three percent from 3.23 percent due to the expected slowdown in global economic growth and the lower forecasts for petroleum prices to $94.5 per barrel from $104.75 per barrel for 2012 and to $92.82 per barrel instead of $102 per barrel for 2013.

During the meeting, the BSP has kept interest rates steady for the fourth consecutive policy rate-setting meeting since May amid the benign inflation outlook as well as the fragile global and domestic economic environment. The overnight borrowing rate is pegged at 4.50 percent while the overnight lending rate is at 6.50 percent.

The BSP raised interest rates by 25 basis points last March 24 and by another 25 basis points last May 5 as a preemptive move to keep inflation expectations well anchored amid the escalating price of oil in the world market.

The policy rate-setting body, however, kept interest rates steady last June 16 and July 28 but raised the reserve requirement ratio for banks by a cumulative 200 basis points to 21 percent from 19 percent to siphon off P70 billion from the financial system and curb additional inflationary pressures arising from excess liquidity brought about by strong inflow of foreign capital.

BSP Deputy Governor Diwa Guinigundo said monetary authorities believed that inflation already peaked last month and would ease in the next few months.

“We were implying earlier that the peak of monthly movements in consumer prices would have been reached in the last quarter of 2011. And the weather is not very predictable nowadays, barring any weather disturbances like the past two typhoons, we might be seeing the October 5.3 percent as the peak based on our assessments,” Guinigundo said earlier. -Lawrence Agcaoili (The Philippine Star)