Economists raise inflation forecasts

Published October 31, 2020, 6:00 AM

by Lee C. Chipongian

 In 2020-2022


The central bank’s September survey of private sector economists’ inflation expectations showed slightly higher mean inflation forecasts for 2020 and 2022 compared to the June survey.

Based on the Private Sector Economists’ Inflation Forecasts, the mean inflation projection for this year is raised to 2.5 percent versus 2.3 percent in the June survey, while for 2022, the mean inflation forecast is also increased to three percent from 2.9 percent.

For 2021 however, analysts reduced their inflation projection to 2.8 percent from 2.9 percent.

The private sector economists’ inflation projection is higher than the Bangko Sentral ng Pilipinas’ (BSP) 2020 forecast of 2.3 percent but it is similar for the 2021 and 2022 projections of 2.8 percent and three percent. 

The 24 surveyed analysts noted key upside risks to inflation which include a possible rebound in domestic demand with the gradual reopening of the economy.

Other upside risks are: higher transport prices; the supply chain disruptions due to the quarantine measures; higher prices of basic and essential items such as food; and higher headline inflation brought about by the additional liquidity from the BSP’s series of policy easing.  

The downside risks to inflation, on the other hand, could come from the impact of prolonged lockdown restrictions which have lasted seven months so far. These are subdued domestic demand, lower consumer spending and high unemployment due to the closure of businesses.

Analysts also think that downside pressures on global crude oil prices and the oversupply of discretionary goods since consumer demand were limited to essential goods, could also contribute to downside risks.

The survey, which was conducted from September 7 to 22, said 20 out of 24 analysts believe there is a 90.9 percent probability that the average inflation for 2020 will settle within the two-four percent target range, while 7.6 percent thinks inflation will fall below two percent. The probability that the average inflation will settle within the target band for 2021 is about 89 percent and 92.3 percent for 2022, said the BSP.