Economists polled by the Bangko Sentral ng Pilipinas (BSP) have raised their 2022 inflation forecast to 3.5 percent, a slight adjustment from 3.4 percent previously, but cut estimates for 2023 and 2024.

In a reformatted quarterly inflation report, now called the Monetary Policy Report (MPR), the BSP said the January 2022 Private Sector Economists’ Inflation Forecasts which is part of MPR, showed a higher mean forecast for 2022 as the market expects the start of the policy normalization phase this year.

Meantime, analysts reduced their inflation projections to 3.1 percent in 2023 and 2.9 percent in 2024. The next two years’ forecasts are lower from the previous 3.2 percent for 2023 and 3.3 percent for 2024.

According to BSP, analysts continue to see broadly balanced risks for the inflation outlook and most of those surveyed anticipate the BSP to end its accommodative stance and to hike the interest rate by 25 basis points (bps) to 125 bps in 2022-2024.

Based on the survey, upside risks to inflation are still the following: persistently high global oil prices which could result in higher transport costs; supply chain disruptions due to lingering concerns over the COVID-19 Omicron variant, the aftereffects of typhoon Odette, and possible occurrence of other weather disturbances; normalization of economic activities given continued vaccine rollout and easing of mobility restrictions to boost domestic demand; election-related spending; and higher energy prices.

As for the downside risks to inflation, economists point to the continued implementation of quarantine measures as COVID-19 cases remain elevated, which could dampen consumer demand and likely impede economic recovery; base effects; and lower domestic food prices and ample food supply owing to non-monetary government interventions, such as the lowering of import tariffs on pork and rice.

The BSP said that based on the probability distribution of the forecasts provided by 16 out of 22 economists and analysts from private banks and financial companies, there is a 76.4-percent probability that average inflation for 2022 will settle within the two-four percent range, while there is a 23.3-percent chance that inflation will exceed four percent. “Meanwhile, the probabilities that inflation will fall within the target band in 2023 and 2024 are seen at 88.4 percent and 80.7 percent, respectively,” noted the BSP.

Based on the MPR, the BSP’s latest inflation forecast for 2022 and 2023 using the revised consumer price index or CPI with 2018 as base year, is 3.7 percent versus the previous 3.4 percent using the 2012 base year. For 2023, the BSP expects 3.3 percent inflation, up from the previous estimate of 3.2 percent.

The central bank gave its own probability estimates in the new MPR. It said that the probability of average annual inflation settling within the two-four percent target range is 50.9 percent for 2022 and 53.1 percent for 2023.

The probability of inflation breaching the low end of the target range is 8.5 percent for 2022 and 18.6 percent for 2023, said the BSP, while the probability of inflation exceeding the high end of the target range is 40.6 percent for 2022 and 28.2 percent for 2023.

The BSP reiterated its earlier projection that inflation will decelerate in early 2022 but could accelerate towards the upper end of the two-four percent target band in the second quarter before moving back to within the target range.

“The initial deceleration of inflation is due mainly to negative base effects from the uptick in pork prices from the previous year. However, inflation is projected to accelerate slightly above the target range in Q2 (second quarter) 2022 driven by elevated global oil and non-oil prices and positive base effects. Nonetheless, inflation is projected to decelerate back to within the target in Q3 (third quarter) 2022 and in Q4 (fourth quarter) 2022,” according to the MPR.