Economists believe inflation still manageable

Manila, Philippines -  Private sector economists support the view of the Bangko Sentral ng Pilipinas (BSP) that inflation will remain manageable this year and next, results of a BSP-sponsored survey showed.

Based on the June survey of 18 local and international banks, analysts see inflation settling at 3.1 percent this year, inching up and staying at 3.6 percent next year and in 2014. These figures were better than the 3.5 percent, 4.1 percent and 4.2 percent projected respectively, in March.

In comparison, BSP sees inflation at 3.1 percent this year, before inching up to 3.2 percent in 2013. The central bank has no forecast yet for 2014.

The forecasts are within BSP’s three- to five-percent target in the next two years. Seven-month inflation stood at 3.1 percent, in line with expectations from BSP and the private sector.

“Analysts attributed their downward adjustment of inflation forecasts to declining world oil prices. They also noted the ongoing euro area debt crisis and the continued strength of the peso as factors which could help temper inflationary pressures going forward,” survey results said.

According to the second quarter inflation report released Friday, international price of Dubai crude – the benchmark for oil refiners – fell by 8.4 percent in the second quarter from the first three months of the year “amid concerns that the European debt crisis is deepening.”

This translated to decline in domestic petroleum prices during the period, the report said. In particular, prices of unleaded gasoline dropped by P6.70 per liter, kerosene by P4.27 per liter and diesel by P4.40 per liter. Cooking gas prices also dipped by P2.58 per liter.

The Philippine peso, on the other hand, has appreciated by 5.1 percent from January to June this year, according to BSP.

Lower prices and a firmer currency provide more value to money, thus, allowing people to buy more with what they earn. This, in turn, boosts demand for goods and services, hence, creating more economic activity with firms supplying more and employing more people to meet demand.

Meanwhile, recent flooding that hit Metro Manila two weeks ago is likely to cause a spike in inflation but not a huge drag on economic growth, New York-based think-tank Global Source said.

It estimates inflation to rise to a high of 3.5 percent to 3.8 percent this year because of the food supply disruptions caused by the flood. This is still within the three percent to five percent target of the Bangko Sentral ng Pilipinas for 2012.

“In our estimate, ... the headline rate could rise to a high of 3.5 percent to 3.8 percent on average this year, still safely within the central bank target. The more likely scenario however would still be of inflation falling within the three percent to 3.5 percent range,” Global Source said.