Private sector economists raised their inflation outlook for this year through 2025 due to recent supply-side shocks, although they still expect inflation to return to the 2-4% target range in 2024 and 2025, the Bangko Sentral ng Pilipinas (BSP) said.
Based on the results of the BSP’s survey of external forecasters in September, the average inflation forecast of analysts for 2023 went up to 5.9% from just 5.5% in the August survey.
Economists’ mean inflation forecast for 2024 and 2025 also climbed to 3.7% (from 3.5% previously) and 3.5% (from 3.4%), respectively.
The analysts’ forecasts are slightly above the central bank’s projections. The BSP sees average inflation at 5.8% this year, before easing to 3.5% in 2024 and 3.4% in 2025.
“Analysts expect inflation to accelerate anew due to recent supply-side shocks domestically and overseas,” the BSP said in the highlights of the Sept. 21 Monetary Board meeting.
“They also anticipate further upside risks to the inflation outlook, due mainly to supply disruptions, particularly from the adverse impact of weather disturbances and trade restrictions,” it added.
At its Sept. 21 meeting, the Monetary Board kept the key interest rate unchanged at a near 16-year high of 6.25%. This was after hiking borrowing costs by 425 basis points from May 2022 to March 2023.
“The Monetary Board deemed it appropriate to maintain prevailing monetary policy settings while emphasizing the BSP’s focus on resuming monetary policy tightening action to respond to emerging upside risks to the inflation outlook and potential second-round effects that could dislodge inflation expectations,” the BSP said.
The central bank’s policy-making body also called for more non-monetary interventions such as the temporary reduction of import tariffs and timely arrival of imported commodities.
“The BSP also continues to prioritize the restoration of inflation towards a target-consistent path over the medium term, in line with its primary mandate to ensure price stability,” it said.
However, the risks to the inflation outlook are on the upside, which could cause inflation to breach the 2-4% target next year, the central bank said.
“The potential impact of higher transport charges is among the major risks to the inflation outlook given the fare increase petitions filed by transport groups in August 2023 due to elevated oil prices,” the BSP said.
The Land Transportation Franchising and Regulatory Board had approved the P1 provisional jeepney fare increases nationwide, raising the minimum fare to P13 starting Oct. 8. For modern jeepneys, the new minimum fare would be P15.
“Other key upside risks to the inflation outlook are the impact of El Niño weather conditions on food prices and utility rates, higher-than-expected minimum wage adjustments, and higher domestic prices of key food items facing ongoing supply constraints,” the BSP said.
BSP Governor Eli M. Remolona, Jr. earlier said that the Monetary Board may resume its monetary tightening at its next policy-setting meeting on Nov. 16 if risks to the inflation outlook persist.
Mr. Remolona also hinted at an off-cycle rate hike, but he said the BSP still needs to review the latest data before coming up with a decision. — Keisha B. Ta-asan