Inflation in the country is projected to surpass government’s target of 2-4 percent this year, owing mainly to skyrocketing fuel and food prices, the ASEAN+3 Macroeconomic Research Office (AMRO) reported.

During the Regional Economic Outlook virtual briefing on Tuesday, April 12, Hoe Ee Khor, AMRO chief economist, said the rate of increase in consumer prices is expected to average by 4.1 percent this year.

Khor noted that AMRO’s inflation estimate is slightly above President Duterte’s goal of two percent to four percent, driven by “supply shocks.” It is also higher than the 3.5 percent forecast for ASEAN, China, Japan, and Korea.

“Inflation has picked up and it's really above the upper band of the target band. So we expect inflation to remain above the target band for most of the year,” Khor told reporters. “Inflation is driven mostly by increases in fuel prices and food.”

He added that the Philippines has yet to fully recovered to pre-pandemic levels, thus domestic demand—while not very weak—remains modest.

“On the demand side, we don't see very strong impetus to growth. So because of that I think inflation is likely to decline within the the target band by next year,” Khor said.

AMRO has set 3.5 inflation forecast for 2023.

“We don't see the need to raise the rate,” Khor said. “But having said that, it's important to make sure that inflation doesn't come in trench.”

“And there's scope, I think for the BSP or the central bank, start considering withdrawing some of the policy stimulus as the economy continues to gain traction and growth continues to recover,” he added.

Headline inflation rose from 2.4 percent in 2020 to 3.9 percent in last year, close to the upper bound of the two percent to four percent target range.

Core inflation, excluding food and energy items, has been hovering about 3.6 percent, suggesting that the inflationary pressures were mainly caused by supply- side factors, including the African swine fever outbreak, weather disturbances, and a steep rise in global oil prices.