Economists lower inflation forecast to 3.5%

MANILA, Philippines - Economists from the private sector have lowered their inflation forecast for the year to 3.5 percent from four percent previously due to lower commodity prices, results of a survey conducted by the Bangko Sentral ng Pilipinas (BSP) showed.

“Inflationary pressures are expected to be dampened by subdued domestic demand, stable food supply and soft labor market conditions,” the BSP said in its survey of economists from 13 financial institutions conducted last June.

Respondents of the survey include economists from ATR Kim Eng Securities, Banco de Oro, Bank of the Philippine Islands, Deutsche Bank Manila, Economist Intelligence Unit, Hong Kong Shanghai Banking Corp., IDEA, ING Bank, Metrobank, Bank of America-Meryll Lynch, Royal Bank of Scotland, Rizal Commercial Banking Corp. and the Union Bank of Switzerland.

For 2010, the average inflation forecast of the economists surveyed stood at 4.8 percent, also lower than the previous forecast of 4.9 percent.

However, some analysts noted that the peso depreciation and the recent volatility in oil prices could temper any further downward pressure on inflation.

“A rebound in oil demand, if the global economy starts recovering, may exert upward pressure on prices,” the central bank also said in its survey report.

Analysts’ inflation forecast for 2009 of 3.5 percent was within the BSP’s official inflation target range for the year of 2.5 percent and 4.5 percent while the 4.8 percent is also within the BSP’s 3.5 percent to 5.5 percent target range for 2010.

On Wednesday, the National Statistics Office (NSO) reported that inflation slowed to 0.2 percent in July, hitting a fresh 22-year low from the 1.5 percent recorded in June, due to slower price increases last month in all commodity groups.

The July inflation was within the central bank’s forecast for the month of -0.3 to 0.6 percent.

BSP Governor Amando M. Tetangco Jr. said the drop was due mainly to “base effects” from high oil prices last year.  Inflation in July last year hit 12.3 percent.

Price of oil fell to about $40 per barrel this year after hitting a record high of $147 per barrel in July last year but has since increased to about $70 per barrel this week.

“As prices normalize, we should see inflation dissipate,” Tetangco has said. He said the central bank’s current policy stance is appropriate.

The BSP’s overnight borrowing rate is at four percent and its overnight lending rate is at six percent.