Inflation to breach BSP target

by Lawrence Agcaoili (The Philippine Star), 26 Apr 2021

MANILA, Philippines — Economists of private banks expect inflation to breach the upper end of the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP) for this year amid supply disruptions and rising global crude oil prices.

Zeno Ronald Abenoja, managing director of the BSP’s Department of Economic Research (DER), said the results of the central bank’s survey of private sector economists for March showed higher mean inflation forecasts of 4.2 percent instead of 2.9 percent for 2021, as well as three percent for 2022 and 2023.

“Analysts expect inflation to remain elevated in the near term, with risks to the inflation outlook tilted to the upside,” Abenoja said.

The upside risks to inflation, he said, are supply disruptions brought about by adverse weather conditions, the African swine fever (ASF), and rising global crude oil prices that could push up transportation costs, as well as higher government spending, renewed consumer demand and normalization of business operations.

Abenoja said other risks that could push inflation higher are the continued rollout of COVID-19 vaccines, the low interest rate environment and base effects.

On the other hand, private economists said downside risks are weak domestic demand due to low purchasing power and the implementation of localized lockdown measures amid the recent spike in new COVID-19 infections.

Abenoja also said the implementation of the 60-day price ceiling on selected pork and chicken products and the mobilization of domestic meat supply from the provinces to the National Capital Region (NCR) are anticipated to ease price pressures.

Inflation averaged 4.5 percent in the first quarter, above the government’s two to four percent target.

Based on the probability distribution of the forecasts provided by 18 out of 24 respondents, Abenoja said there is a 66.2 percent probability that inflation would rise above four percent this year and 33.2 percent chance that it would settle within the BSP’s two to four percent range.

BDO Unibank has the highest inflation forecast for this year at 5.1 percent, followed by Security Bank with five percent, Rizal Commercial Banking Corp. with a range of 4.5 to five percent, UnionBank with 4.9 percent, Standard Chartered Bank with 4.8 percent, and Bank of Commerce with 4.7 percent.

BSP Governor Benjamin Diokno earlier said the reimposition of stricter mobility restrictions in the NCR and adjacent provinces or NCR Plus could impede recovery from the pandemic-induced recession in the first half.

With this, Diokno believes the country’s gross domestic product (GDP) would grow between six and seven percent this year.