Global Source cuts RP inflation forecast to 3.2%

MANILA, Philippines - New York-based think-tank Global Source Partners has scaled down its inflation forecast this year to 3.2 percent, from an earlier 3.4 percent, despite temporary price spikes brought about by damages caused by tropical storm Ondoy and typhoon Pepeng.

In its latest quarterly outlook on the Philippines, Global Source said the pressure on food prices by the recent natural calamities would only be fleeting and temporary.

“With calamity effects likely to be temporary and intentionally subdued, we expect headline inflation to average at around 3.2 percent this year and about 4.1 percent in 2010, though keeping in mind other supply-side risks particularly with oil prices on a rise as the global economy recovers,” the think-tank stated in its 16-page report.

It pointed out that the price controls put in effect by Malacañang and the Department of Trade and Industry (DTI) on basic commodities and petroleum products as well as the assurance made by the Department of Agriculture (DA) on the supply of rice would help put in check consumer prices.

Latest data released by the National Statistics Office (NSO) showed that inflation rose for the second straight month, kicking up to a five-month high of 1.6 percent in October from 0.7 percent in September due to higher food prices.

This brought the average inflation to 3.2 percent from January to October compared with 9.4 percent in the same period last year.

The inflation targets of the Bangko Sentral ng Pilipinas (BSP) are pegged at between 2.5 percent to 4.5 percent this year and 3.5 percent to 5.5 percent next year.

Due to the uptick, the central bank now sees inflation averaging 3.28 percent instead of 3.03 percent this year and 4.2 percent instead of 3.43 percent next year.

Despite the higher inflation forecasts, the BSP’s Monetary Board decided to keep its overnight borrowing rate at a record low for the third straight month to help support domestic demand, including reconstruction efforts of damages caused by recent calamities and economic activity.

The MB decided to keep the central bank’s key policy rates steady at four percent for the overnight borrowing rate and six percent for the overnight lending rate.

The BSP has slashed its key policy rates by 200 basis points since December last year until July. It has decided to keep the rates unchanged since July.

Global Source also raised the projected budget deficit of the Philippines to around four percent of gross domestic product (GDP) instead of 3.5 percent of GDP.

The Department of Finance (DOF) expects the government to incur a record deficit of P250 billion or 3.2 percent of GDP this year from P68.1 billion or 0.9 percent of GDP last year due to the full impact of the global economic meltdown.

However, the deficit ceiling is likely to be breached as the government incurred a shortfall of P237.5 billion in the first nine months of the year due weaker tax take and accelerated spending resulting from the implementation of the P330-billion Economic Resiliency Plan.