Economists polled by the Bangko Sentral ng Pilipinas (BSP) expect inflation to average at 3.9 percent this year, slightly lower than its previous forecast of four percent due to base effects, based on the December 2023 BSP Private Sector Forecasts for Inflation.
Market analysts’ lower 2024 mean inflation projection was taken into consideration by the BSP’s policy-making arm, the Monetary Board, when they decided to keep the 6.5 percent policy rate last Dec. 14, BSP’s last policy meeting in 2023.
BSP’s survey of external forecasters also showed an on-point six percent projection for 2023 inflation, which was the actual full-year consumer price index (CPI) rate last year.
While economists expect a lower inflation for this year, its mean inflation forecast for 2025 increased to 3.5 percent from 3.4 percent in the previous survey.
According to the BSP, “analysts expected inflation to remain elevated in the succeeding months but gradually ease toward the target range in 2024, particularly as base effects manifest and as the BSP’s policy actions continue to work their way in curbing inflation.”
It added that “risks to the inflation outlook are likewise seen to continue leaning toward the upside due mainly to supply-side factors and second-round effects.”
Both 2024 and 2025 estimates are within the government target of two percent to four percent inflation range.
The BSP said that analysts generally 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 also expect inflation to remain elevated but gradually tread the path towards the target range, with risks to the inflation outlook still significantly skewed to the upside due mainly to supply-side shocks and second-round effects.
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 such as food importation, as possible downside risks to the inflation outlook, said the BSP.
Meanwhile, the BSP revised its risk-adjusted full-year inflation forecast to 4.2 percent for 2024 and 3.4 percent for 2025. The baseline forecasts for 2024 and 2025 are 3.7 percent and 3.4 percent, respectively.
The difference between the two forecasts is that the risk-adjusted inflation is equivalent to the baseline inflation forecast plus the probability weighted impact of the different upside and downside risks to the inflation outlook.
BSP Governor Eli M. Remolona Jr. has said that he prefers the risk-adjusted inflation forecasts because these numbers take into consideration events or factors that are expected to happen at some point in time. Meanwhile, baseline estimates are based on events that has already transpired.
Remolona has also signaled consistently to the market that the inflation-targeting BSP is hawkish, which means it will remain tight for longer and will only consider reducing the target reverse repurchase (RRP) rate when they see a convincing low and stable inflation of between two percent and four percent.
As it is, the CPI has been above-target for 20 months. This is the first time – with the December number of 3.9 percent – that inflation fell below four percent.
“The Monetary Board deems it necessary to keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident. The BSP will continue to monitor inflation expectations and second-round effects and take appropriate action as needed to bring inflation back to the target, in keeping with the BSP’s price stability mandate,” said the BSP.