28 May 2024 – Analysts trim down inflation expectations

Keisha Ta-Asan – The Philippine Star
May 28, 2024 | 12:00am

MANILA, Philippines — Private sector economists further trimmed down their inflation expectations this year, with the rate expected to stay within the two to four percent target range of the Bangko Sentral ng Pilipinas (BSP) until 2026.

Based on the central bank’s Monetary Policy Report from its May meeting, analysts cut their inflation forecast to 3.7 percent this year from 3.8 percent in the April survey.

The projection for 2025 remained unchanged at 3.5 percent, while analysts raised their estimate to 3.5 percent in 2026 from 3.4 percent a month ago.

“Analysts expect within-target inflation over the policy horizon, although settling at the upper end of the target range as uncertainty lingers. Upside risks continue to dominate due mainly to supply chain disruptions,” the BSP said.

According to the BSP, analysts cited elevated prices of basic goods due to supply-side pressures from the geopolitical conflict in the Middle East, the negative impact of El Niño and the adverse effect of La Niña in the second half of the year as upside risks.

Meanwhile, a few analysts said downside risks include easing inflation and waning inflationary pressures on prices as El Niño and base effects weaken in the near term.

Headline inflation accelerated for the third straight month to 3.8 percent in April from 3.7 percent in March on higher food and transport costs. April marked the fifth straight month that inflation stayed within the target range.

The BSP survey also showed that there is a 77.2-percent chance (from 71.5 percent) that inflation will settle within the two to four percent target in 2024, with the remaining 22.8 percent showing inflation breaching the target.

“For 2025, the probability that inflation will fall within the target band increased to 85.3 percent (from 78.2 percent). For 2026, there is the 73.5-percent probability (from 76.5 percent) that inflation will settle within the target band,” the BSP said.

Meanwhile, most analysts anticipate interest rates to remain unchanged in the second quarter and third quarter this year. But a number of respondents expect a 25-basis-point cut in the third quarter.

“By the end of 2024, the BSP is expected to reduce the policy rate by 25 to 150 basis points,” the central bank said.

“For 2025, BSP is seen to further loosen its policy stance by a range of 25 to 250 basis points. For 2026, analysts expect an additional reduction of about 50 to 150 basis points in the policy rate.”

To tame inflation, the BSP’s Monetary Board hiked policy rates by 450 basis points from May 2022 to October 2023, bringing the benchmark interest rate to 6.50 percent, the highest in 17 years.