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Economists see low inflation

Private sector economists expect the inflation rate to remain low until 2017, amid slower increases in food and oil prices, results of a survey released by Bangko Sentral ng Pilipinas over the weekend show.

The survey conducted in September 2015 yielded lower mean inflation forecasts for 2015 to 2017 relative to the results in June 2015.

“In particular, the mean inflation forecast for 2015 was lower at 1.7 percent [from 2.3 percent in June 2015]. Similarly, the average annual inflation forecasts for 2016 and 2017 declined to 2.7 percent and 2.9 percent [from 3.1 percent and 3.0 percent], respectively,” the survey said.

The private sector analysts attributed the lower inflation expectations mainly to lower international food and oil prices. These are likely to outweigh the upside risks brought by the El Niño dry spell, the possible Federal rate hike, increased expenditure in the upcoming national elections, holiday spending and the normalization of oil prices.

The probability distribution on the forecasts provided by 23 of 28 respondents showed there was a 62.8-percent chance that average inflation for 2015 would settle within the 1 to 1.99 percent range, below the 2 to 4 percent target range for the year.

Respondents said there was a 19.8-percent chance that 2015 inflation rate would fall within the 2 to 4 percent target range in 2015.

“Meanwhile, for 2016, the respondents said that there is a 64.3-percent chance that inflation will fall within the 2 to 4 percent target band,” the survey said.

Results of the September 2015 Consensus Economics inflation forecast survey for the country also showed lower mean inflation forecast for 2015 and 2016 at 1.9 percent (from 2.4 percent in June 2015) and 3.2 percent (from 3.5 percent), respectively.

Bangko Sentral said in the inflation report for the third quarter that inflation would likely settle below the target range of 2 percent to 4 percent this year, due to slower increases in food prices.

Citing its latest baseline inflation forecasts, Bangko Sentral said inflation would settle slightly below the target range of 2 percent to 4 percent for 2015 before rising gradually toward the midpoint of the target range of 2 to 4 percent in 2016-2017.

“Risks to the inflation outlook continue to be broadly balanced. Pending petitions for power rate adjustments and the impact of stronger-than-expected El Niño weather conditions on food prices and utility rates are seen to pose upside risks to the outlook,” it said.

Downside risks, on the other hand, could stem from slower-than-expected global economic activity and petitions for lower transport fares.

It said while inflation expectations breached the lower end of the 2015 target band, they remained within the inflation target range over the policy horizon.

“Nevertheless, domestic economic activity continues to expand at a solid pace, as credit and liquidity growth remains in step with the overall requirements of the economy. Volatility in the global financial market resulting from slower growth in China and the expected normalization of monetary policy in the US could be an important consideration for the inflation outlook in the quarters ahead….,” the report said.

Inflation in September further slowed down to 0.4 percent from 0.6 percent in August. It was also significantly slower than 4.4 percent recorded in the same month last year.

This brought the first nine months’ average to 1.6 percent, below the government’s official target of 2 percent to 4 percent for 2015. 

Topics: Economists , inflation
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