Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said Monday (May 31) that they see a lower inflation for May of 4.4 percent based on BSP’s point inflation projection for the month.
While still above the two-four percent government inflation target for 2021-2024, the May inflation forecast is lower than the 4.5 percent actual rate in March and April.
Based on the BSP’s Department of Economic Research latest commentary, inflation for May could be as low as four percent to a high of 4.8 percent.
“Higher prices of meat and domestic petroleum products along with the upward adjustment in Meralco electricity rates are the main sources of upward price pressures for the month,” said BSP in a statement.
“These could be offset by the decline in prices of key food items, such as rice, vegetables, and fish, due to improved supply conditions, along with the appreciation of the peso,” it added.
Both the BSP and the market expect inflation to remain above the four-percent level for the first half due to supply side pressures which both view to be temporary in nature, before it starts to come down nearer to the mid-point level next year. By the fourth quarter this year, the BSP said inflation will start to decelerate closer to the target.
Likewise, the BSP and private sector economists see subdued second-round effect issues while the economy has yet to take off, but are wary of global oil price outlook. The inter-agency Development Budget Coordinating Committee has a medium-term Dubai crude oil price assumption of $50 to $70 per barrel and a peso-dollar exchange rate assumption of P48 to 53 for the next three years.
Inflation rate in January was 4.2 percent from December 2020’s 3.5 percent, and it rose to 4.7 percent in February before easing to 4.5 percent in March and in April.
Diokno remains confident that inflation expectations will continue to be well-anchored to the two-four percent government target despite above four-percent inflation since January.
The BSP’s latest inflation forecasts for 2021 is 3.9 percent and three percent for 2022, and these forecasts already factor in the 4.2 percent GDP contraction in the first quarter.
The BSP’s inflation forecast is lower than the 4.3 percent projection of market analysts. For 2022, analysts expect 3.1 percent inflation. The BSP’s survey of 24 analysts was conducted last March. At the time of survey, the BSP’s inflation forecast was still 4.2 percent for 2021 and 2.8 percent for 2022.
According to the survey, analysts expect upside risks to inflation will come from the following: supply disruptions brought about by adverse weather conditions and African Swine Fever; rising global crude oil prices, which could push up transportation costs; and higher government spending, renewed consumer demand, and normalization of business operations. The survey also included the continued rollout of vaccines, low interest rate environment, and base effects as factors for the latest economists’ forecasts.
The BSP’s inflation outlook is that from the first quarter to the third quarter this year, inflation rate will accelerate above the two-four percent target due to the transitory impact of supply-side price pressures. By end-2021 until the first quarter next year, it expects inflation to decelerate below the midpoint of the target range before settling near the three-percent level by the second half of 2022 with the moderation of global oil and non-oil prices.