Analysts see lower 4.1% inflation for 2021

Published July 26, 2021, 7:00 AM

by Lee C. Chipongian

Results of the central bank’s survey of private sector economists showed a lower 4.1 percent mean inflation forecast for 2021, down from its previous (March) survey of 4.3 percent.

“Analysts expect inflation to gradually move towards the government’s target range in 2021, with risks to the inflation outlook generally tilted to the upside on expectations that the continued vaccine rollout will help further reopen the economy,” the Bangko Sentral ng Pilipinas (BSP) said in its second quarter inflation report, which also includes the quarterly Private Sector Economists’ Inflation Forecasts.

For next year and in 2023, surveyed analysts raised their mean inflation forecasts. Their estimate for 2022 was raised to 3.2 percent from 3 percent, and to 3.1 percent for 2023 from its previous estimate of three percent.

“Inflation is seen settling within the target band (of two-four percent) by 2022, with most of the analysts anticipating the BSP to end its accommodative stance and raise the RRP (reverse repurchase) rate,” said the BSP, citing the 23 analysts in the survey which was conducted on June 4 to 14.

The latest data indicated that 18 out of 23 surveyed analysts said there is a 40.6 percent probability that average inflation for this year will settle within the two-four percent BSP target range. However there is a higher 58.6-percent chance that inflation will breach four percent.

As for the next two years, analysts think inflation will stick to the BSP target range of two-four percent with a 76.9 percent probability for 2022 and 84.5 percent probability in 2023.

Last June 24, for the Monetary Board’s fourth policy meeting, the BSP kept the key rate steady at two percent to support a still fragile local economy. The Monetary Board said recovery is still tentative because of COVID-19 cases.

Citing trends in global crude oil, the BSP also revised its inflation forecast for 2021 to four percent from its previous (May 13) projection of 3.9 percent. For 2022, the forecast is three percent, also higher than earlier estimate of 2.9 percent. For the first time, the BSP announced a 2023 inflation projection of three percent. The BSP’s inflation forecasts are lower than private sector economists’ numbers as of the June survey.

Inflation rate for the second quarter this year averaged at 4.3 percent, lower than the first quarter’s 4.5 percent average.

Inflation slowed down in June with 4.1 percent from May’s 4.5 percent. The inflation rate was at the 4.5 percent-level since March.

The BSP has kept its key interest rate at an all-time low of two percent since November 2020.

The Monetary Board continued to assess that the average inflation will likely settle near the upper end of the two-four percent target range this year. “In the coming months, the continued facilitation of meat imports and other targeted programs to augment domestic supply should further temper pressures on food prices and inflation. Given current trends, our latest projections show that average inflation is likely to settle near the upper end of the target range in 2021, before easing towards the midpoint of the target range in 2022 and 2023,” said BSP Governor Benjamin E. Diokno last Thursday, when they released the second quarter inflation report.

Diokno stressed that fiscal interventions are critical for market confidence, to boost demand and in “preventing deeper economic scars.” 

“Of these various interventions, ensuring timely and extensive access to vaccines is of paramount importance,” Diokno reiterated. “As the government’s vaccination program continues to gain momentum, we can expect business and household sentiment to improve and thus drive a rebound in spending, employment, and consumption,” said Diokno.