The country’s inflation, currently averaging at 6.2 percent as of end-November, is expected to close 2023 at a flat six percent, according to analysts.
This is the same forecast announced earlier by the Bangko Sentral ng Pilipinas (BSP) on the day the Monetary Board decided to keep the current target reverse repurchase (RRP) rate at 6.5 percent. The RRP rate is the policy rate.
In its latest “Market Call” report, Metrobank subsidiary First Metro Investment Corp. (FMIC) and its research partner University of Asia and the Pacific (UA&P) said that inflation “would continue its downward trend and end with a full year 6.0% uptick in 2023” despite threats of the effects of El Niño weather conditions as supply-side pressure to inflation.
FMIC-UA&P analysts said that while El Niño potentially could increase rice prices, what could mitigate this is the easing of crude oil prices because of the global economic slowdown and increasing inventories.
Analysts noted that “rice prices have tended to rise and weakness in international crude oil prices due to ample supply and weak demand amidst a global economic slowdown, especially in the advanced economies and China will likely partly mute the former’s impact.”
While reducing its full-year inflation to six percent from its previous report of 6.2 percent, FMIC-UA&P maintained its growth forecast of 5.5 percent for 2023 which was lower than the government projection of six percent to seven percent.
“With few surprises from economic data releases in the rest of December, we confirm our 5.5% GDP (gross domestic product) growth outlook for 2023, with an upward bias, and inflation rate should remain fairly stable in the low 4% path,” said analysts.
They noted the government’s last minute spending in the last two months of the year which will “provide a good boost to aggregate demand in Q4 (fourth quarter) and spill over into Q1-2024.”
“Apart from a rush to complete infrastructure projects, 13th month pay (also for private sector) should add a lift to consumer spending,” it added.
The report also noted that the services sector will likely lead growth drivers in the fourth quarter and in 2024 as major sub-sectors such as trade, transport and storage, and accommodations and food services “should see significant increases in employment as locals and foreigners hike leisure spending.”
In a recent statement from the inter-agency Development Budget Coordinating Committee (DBCC), it said that with strong domestic demand and broad-based expansion in major sectors, the economy’s growth momentum “is expected to continue for the rest of the year and surpass that of our neighboring countries.”
For the first three quarters, GDP grew by 5.5 percent. As the growth is expected to fall below government assumptions of six percent to seven percent for 2023, the DBCC adjusted the 2024 assumption lower to 6.5 percent to 7.5 percent from the previous 6.5 percent to eight percent.
Meanwhile, the baseline consumer price index (CPI) is still above-target at 6.2 percent as of end-November versus the two percent to four percent target.
The BSP expects inflation to hit six percent at the end of the year, based on its latest risk-adjusted forecast. For 2024, the forecast is 4.2 percent and 3.4 percent for 2025.
The BSP has recently announced its three-year medium term inflation forecast range of two percent to four percent target until 2026.
The three-year medium-term inflation target is consistent with BSP’s “forward-looking approach to monetary policy formulation to keep inflation expectations anchored to the inflation target.”
The BSP said that “given the current structure of the Philippine economy, recent economic developments, and the overall macroeconomic outlook over the next few years” the existing target range remains appropriate.
Meanwhile, the BSP is confident that inflation outlook is still supportive of economic growth, despite its current high levels.
The BSP said the enactment of structural reforms will encourage domestic economic activity, raise productivity, and help build a sustainable non-inflationary economic growth.