Economists raise inflation forecast to 4.3% this year, 3.3% in 2022

The Bangko Sentral ng Pilipinas (BSP) said private sector economists have raised their inflation forecast to 4.3 percent this year based on results of the September survey versus 4.1 percent in June due to rising oil prices and depreciating peso.


For 2022, analysts’ mean inflation forecast remains at 3.2 percent while the forecast for 2023 was higher at 3.2 percent from the previous 3.1 percent estimate (June).

According to the BSP, the 21 economists surveyed in September expect inflation to be “slightly above the upper end” of the two-four percent government target for this year, with “broadly balanced risks surrounding the outlook.”

Of the 21 surveyed private economists, 17 said there is a 17.2 percent probability that inflation for 2021 will settle within the two-four percent target range, while a larger 82.3 percent said inflation will remain above four percent. However, the probability that inflation will fall within the target band in 2022 is high at 84.2 percent and 86.7 percent in 2023.

Based on the survey, the upside risks to inflation continue to include the following: supply disruptions brought about by the reimposition of stricter quarantine measures, adverse weather conditions during the rainy season, and persistence of the African Swine Fever; rising global crude oil prices; and weakening of the peso which is still in the P50-level against the US dollar

The downside risks to inflation are: subdued domestic demand due to low purchasing power (brought about by high unemployment); the prolonged and stricter lockdown measures amid the local transmission of the Delta variant, which could weigh down on recovery efforts; and increased food importation following the implementation of lower import tariffs on pork and rice, which are seen to augment domestic food supply and lower food prices.

Analysts also maintained that the BSP’s Monetary Board will keep the current two percent policy rate for the rest of 2021.

The BSP is also keen on keeping current policy settings unchanged for the rest of 2021 to support the economy’s gradual recovery.

For next year, inflation is expected to settle close to the midpoint of the target by 2022 and 2023, with most of the analysts anticipating the BSP to end its accommodative stance by the last quarter of 2022.

BSP Governor Benjamin E. Diokno said economists’ inflation expectations are consistent with the BSP’s latest projections of 3.3 percent in 2022 and 3.2 percent in 2023.

“In response to the manageable inflation environment, the BSP maintained its accommodative monetary policy settings during the third quarter of 2021 mainly to sustain the economy's nascent recovery. We expect inflation to gradually ease, even as the risks to the outlook lean toward the upside for the rest of the year,” said Diokno on Thursday, Oct. 21, during the BSP’s inflation quarterly press briefing.

Diokno said many central banks are now reassessing monetary policy settings with high inflation due to strong demand and persistent supply constraints. But, he said that the BSP can always intervene in the foreign exchange market to “smoothen volatility as well as macroprudential measures to target specific imbalances and prevent the build-up of risks in the financial system.”

Last week, Diokno said that with increasing inflation pressures, some central banks have started to raise interest rates but many have decided to wait, including the BSP. He cautioned against tightening monetary policy “too soon” with an economy that has yet to fully take off.

The BSP chief has said that inflation remains transitory and supply-driven, and therefore there was “no justification for monetary intervention.” He also noted that there is no pressure on the demand side such as increases in wages, transport costs, and housing. Real estate prices are also steady with downward bias due to the slack in the economy.