The Bangko Sentral ng Pilipinas (BSP) is projecting that the inflation rate for the first three quarters of 2021 will stay above four percent before easing back to within the 2-4 percent target in the last three months of the year.

“Barring additional supply side factors, inflation is projected to settle above the target over the next few months, before decelerating back to two-four percent by the fourth quarter,” said BSP officials in an email.

In a forum last Friday, BSP Governor Benjamin E. Diokno said inflation is expected to accelerate above the high-end of the target range in the first three quarters this year but will “decelerate below the midpoint of the target range by the fourth quarter 2021 and first quarter 2022 due to negative base effects before settling close to the midpoint by the second half of 2022.”

The January inflation was at 4.2 percent – the highest since February 2019 -- and for February this year, the BSP’s Department of Economic Research (DER) is projecting a point inflation of 4.7 percent based on a forecast range of 4.3 to 5.1 percent.

The DER had seen this trend of a steadily increasing inflation due to supply side shocks, but said this is temporary in nature and do not require monetary policy actions.

So far, Diokno said there is no evidence of supply side pressures feeding into demand shocks such as wage and fare transport increases. He said risks to the inflation outlook is broadly balanced for 2021 but could remain on the downside in 2022.

The primary upside risks to inflation are supply side pressures such as oil and meat prices and the impact of an earlier rollout of COVID-19 vaccines on domestic economic activity, said Diokno. The downside risks to inflation are delays to mass inoculation, the potential outbreak of new COVID-19 variants and its impact on the still frail economy.

The BSP said its inflation outlook remains consistent with their previous experience with similar supply shocks involving food and oil prices. “With overall demand still gradually recovering, monetary policy will continue to focus on providing ongoing policy support to the economy while keeping an eye on second-round effects to ensure a sustainable recovery over the medium term,” said the BSP.

The BSP has, however, renewed calls for non-monetary interventions to prevent inflation from rising further or beyond the fourth quarter of 2021.

“The BSP continues to voice its support for non-monetary interventions that will directly and effectively address prevailing specific pressures on consumer prices,” it said.

The 4.2 percent January inflation, while breaching the upper-bound of the BSP’s forecast range of 3.2- 4.1 percent for the month, is in line with the BSP’s continued assessment that inflation increases are transitory for the first six months of 2021 at least, mainly because of supply-side pressures related to the African Swine Fever, weather-related disturbances, higher global oil prices, and positive base effects.

For 2021, the BSP has a latest inflation average forecast of 3.4 percent and a flat three percent for 2022, in contrast to the International Monetary Fund’s 3.1 percent estimate for 2021. The IMF’s 2022 inflation projection for the Philippines is also three percent. The World Bank, in the meantime, has a lower 2.8 percent inflation projection for this year and also three percent for 2022.