UBS lowers Phl inflation forecasts for 2013,2014

MANILA, Philippines - Switzerland-based investment bank UBS has lowered its inflation forecast for the Philippines in 2013 and 2014 as it expects food prices to remain benign.

In a report, UBS economist Edward Teather said he sees inflation rate easing to 3.5 percent this year and eventually rising to four percent next year. These were lower than the bank’s original forecast of 4.3 percent and 4.1 percent for 2013 and 2014, respectively.

The inflation rate measures a broad rise or fall in prices that consumers pay for a standard basket of goods.

The country’s annual average inflation rate decelerated to 3.2 percent last year from 4.6 in 2011, the slowest pace inflation has grown on year on year basis.  In December alone, inflation increased marginally to 2.9 percent.

Teather said Philippine inflation has been slower than expected in the fourth quarter of 2012, mostly due to lower than expected consumer prices.

The central bank expects inflation rates for the next two years to remain within the lower bound of the target.

The Development Budget Coordination Committee, an inter-agency body that sets the macroeconomic targets, expects consumer prices to range within three to five percent for 2013 and 2014.

Benign inflation dynamics should keep monetary policy settings in the Philippines on hold in the first half of the year, Teather said.

“Philippine policy settings seem set to remain unusually loose through early 2013, in line with our standing forecasts,” Teather said.

With the country’s GDP showing little sign of weakness over the last couple of years, the rationale for sustainably lower inflation in the Phiippines is anchored on an increase in the pace of potential growth, he noted.

“In the Philippines we are hopeful that a recovery in investment relative to GDP will occur alongside a favorable reform dynamic and boost potential growth again in the future,” Teather said.

The potential growth of an economy, according to Teather,  rests on increasing the availability of capital, labor or improving the efficiency with which these factors of production are put together.