Economists surveyed by the Bangko Sentral ng Pilipinas (BSP) expect inflation to fall within the target range in 2024 at four percent average versus the estimated 6.1 percent consumer price index (CPI) by the end of this year.
Based on the November 2023 BSP Private Sector Forecasts for Inflation report which was conducted from Nov. 9 to 15, the 21 surveyed economists think inflation will be lower at four percent next year compared to its previous forecast of 4.1 percent in October.
While inflation expectations for 2023 remained steady, the 2024 estimate has decreased. For this year, polled analysts still believe CPI will average at 6.1 percent which was the same forecast they gave in the October survey.
Economists also retained the 3.5 percent inflation projection for 2025. Both 2024 and 2025 estimates are within the government target of two percent to four percent inflation range.
The BSP said generally, analysts expect inflation to remain elevated, with risks to the inflation outlook still significantly skewed to the upside due mainly to supply-side shocks and second-round effects.
Analysts expect inflation to remain "elevated but gradually tread the path towards the target range" despite these upside risks.
Based on the survey which was included in the latest Monetary Policy Report (MPR), upside risks to inflation continue to be the following: elevated prices of basic goods (particularly oil and food, including rice) due to supply-side shocks attributed mainly to weather disturbances such as typhoons and El Niño; the adverse impact of prolonged geopolitical tensions such as the Russia-Ukraine war and Israel-Hamas conflict; and the higher transport fare and utility rates.
“A few analysts cited the weaker-than-expected global economic growth, recent deceleration of global oil prices, and improvement in domestic food supply owing to non-monetary government interventions (e.g., food importation) as possible downside risks to the inflation outlook,” noted the BSP.
On the probability distribution of the forecasts which was provided by 15 out of 21 respondents, there is definitely a 100-percent probability that inflation will exceed four percent this year. As of end-October, the year-to-date CPI stands at 6.4 percent, way above the target.
For next year, the probability that inflation will settle within the target band increased to 63.7 percent from 48.9 percent in the previous survey.
For 2025, analysts said there is a 74.6 percent chance that CPI will remain within the target band, almost the same probability as in the October survey of 74.7 percent.
The survey since this year included a question on policy rate expectations.
Based on the preliminary results, the BSP said majority of analysts expect the BSP to keep the policy rate at 6.5 percent until the first quarter of 2024.
“By end-2024, most analysts anticipate the BSP to reduce the key policy rate by a range of 50 to 200 bps, and expect further easing of about 25 to 200 bps in 2025,” said the BSP.
During its Nov. 16 Monetary Board policy meeting, the BSP left the overnight target reverse repurchase (RRP) rate untouched at 6.5 percent. This is after raising the key rate by 25 basis points (bps) last Oct. 26 in an off-cycle move.
The latest baseline CPI forecasts is now six percent for 2023, 3.7 percent for 2024 and 3.2 percent in 2025. Meanwhile, the BSP’s risk-adjusted inflation forecast for this year is 6.1 percent, 4.4 percent in 2024 and 3.4 percent in 2025.
For the baseline CPI estimates, the BSP said the upward revisions were due to the following: higher-than-expected inflation outturns; higher inflation nowcast over the near term; approved transport fare increase; impact of moderate El Niño weather conditions; and uptick in global crude oil prices.
The lower baseline inflation forecast of 3.2 percent for 2025 was because of the appreciation of the peso vis-à-vis the US dollar following negative base effects, said the BSP.
Meanwhile in the first quarter next year, inflation is seen to “temporarily settle within the target range” mainly due to negative base effects.
However, the BSP noted that inflation will accelerate above the target from April to July 2024 because of the impact of El Niño weather conditions and positive base effects.
Inflation is then expected to return to within the target range in the third quarter of 2024 and settle near the midpoint or about three percent in the last quarter next year.
“Supply-side inflation pressures continue to moderate, as the National Government’s non-monetary interventions and the ongoing harvest season help ease headline inflation,” said the BSP in the MPR.
But price pressures could once again materialize from the impact of El Niño conditions on domestic and international prices of commodities as well as on electricity.
Other supply-side factors and second-round effects could come from: increases in transportation fares and minimum wage which have already been approved; global oil prices have likewise risen amid the announced production cuts of OPEC+ members; and the possible escalation of geopolitical conflict in the greater Middle East fueling additional risks in the global oil market.