The Bangko Sentral ng Pilipinas’ (BSP) projects the average inflation this year will likely exceed the 2-4% government’s target due to supply-side pressures while the 2022 forecast will also increase as the global economy recovers.
BSP Deputy Governor Francisco Dakila Jr. said on Facebook the latest 2021 rate of price increases projection is 4.2 percent while the 2022 projection is 2.8 percent.
These were set at 4% and 2.7% for 2021 and 2022, respectively, during the rate-setting meeting of the BSP’s policy-making Monetary Board (MB) last February 11.
Dakila cited two factors as the primary reasons for the projection adjustments. One is the further acceleration of the February 2021 inflation rate to 4.7% from 4.2% the previous month due to the impact of the African swine fever and the higher prices of oil in the international market.
He, however, maintained these factors are transitory.
“And so we are actually seeing that the inflation path will decelerate below the midpoint of the target range towards the fourth quarter of this year and continuing on the first quarter of next year before settling close to the mid-point by the second half of next year,” he added.
He identified the second factor for the upward adjustment in the BSP’s average inflation forecasts for this and next year as the outlook for international oil prices. “As we know, the rollout of the vaccines globally has led to an improved outlook for global performance,” he said of the projection of higher oil prices.
Last February, the MB-approved 2021 average price of Dubai crude oil was US$54.65 per barrel but this has been changed to USD%1.37 per barrel. For 2022, the previous forecast was US$51.90 per barrel but this is now at US$57.79 per barrel.
“As the global economy recovers, the oil prices will also recover and this has an impact on inflation,” Dakila said, adding that BSP officials expect inflation to stay above the upper end of the target band until the third quarter of the year but is not expected to hit 5%.
He said they continue to monitor for any second-round effects, or if there would be petitions for electricity or fare hikes, but so far nothing has emerged “apart from those that are subject to the supply shocks which are few key food items, including meat in particular.”