Analysts trim inflation expectations

Private sector economists trimmed their inflation expectations for this year and the next two years, with the majority expecting the consumer price index (CPI) to fall within the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target range until 2026.

The BSP’s Monetary Policy Report from its August meeting showed the analysts’ forecasts continued to move closer to the midpoint of the 2-4% target range.

The BSP’s survey of external forecasters (BSEF) for August showed that the mean inflation forecast was cut to 3.5% for this year from 3.7% in the May survey.

The inflation forecast for 2025 was trimmed to 3.1% from 3.5% in the May survey.

Likewise, analysts cut the 2026 forecast to 3.2% from the 3.4% projection in May.

“Risks to the inflation outlook are broadly balanced, with local inflation expected to trend lower for the rest of the year,” the BSP said. “Downside risks to the inflation outlook are seen to stem largely from lower rice prices, following the implementation of Executive Order (EO) No. 62.”

President Ferdinand R. Marcos, Jr. issued EO 62, which reduced tariffs on imported rice to 15% from 35% until 2028 to lower prices of the staple. The order took effect in July.

“Analysts also anticipate downward inflationary pressures from a stronger peso against the US dollar, as well as favorable base effects,” the BSP said.

The local unit closed at PHP 55.905 per dollar on Friday, strengthening by 30.5 centavos from its PHP 56.21 finish on Thursday, Bankers Association of the Philippines data showed. This was the first time the peso hit the PHP 55-per-dollar level in almost six months or since its PHP 55.58-a-dollar close on March 18.

Year to date, the peso has depreciated by 53.5 centavos from its PHP 55.37-a-dollar close on Dec. 29, 2023.

“Meanwhile, the main upside risk is expected to arise from second-round effects, such as higher electricity costs brought about by a potential uptick in oil prices amid geopolitical conflicts,” the BSP said.

At the same time, the BSEF showed most analysts expect inflation to remain within the 2-4% target until 2026.

“Compared to the July survey, the August probability distribution for 2024 remained narrow and within the target range. The probability distribution shifted slightly to the left for 2024-2026, indicating a strong likelihood that inflation will stay well within the target range,” the BSP said.

Forecasts provided by 18 out of 23 respondents showed an 86.4% chance that inflation will remain within the 2-4% target range for 2024. However, this was lower than the 87.2% recorded in July.

On the other hand, analysts estimated a 12.5% chance that inflation will surpass the target range, up from 12%.

Meanwhile, the probability of inflation staying within the target range for 2025 decreased to 80.6% from 84.3%.

Expectations of inflation staying within target for 2026 likewise slipped to 82.7% from 86.8%.

The BSEF also showed that most analysts see the BSP cutting rates by another 25 basis points (bps) in the fourth quarter, bringing the total amount of rate cuts for the year to 50 bps.

“Moreover, they expect the BSP to lower the rate by 50-250 bps in 2025, with additional cuts of up to 100 bps by the end of 2026,” it said.

Last month the Monetary Board cut its policy rate by 25 bps to 6.25% from 6.5%.

BSP Governor Eli M. Remolona, Jr. previously said the central bank could cut rates by another 25 bps within the year. The Monetary Board’s last two policy-setting meetings this year are on Oct. 17 and Dec. 19. — Aaron Michael C. Sy