Inflation seen below 3%

MANILA, Philippines - Inflation could average even below three percent this year if global oil prices continue to fall, a Bangko Sentral ng Pilipinas official said.

BSP Deputy Governor Diwa C. Guinigundo said the 3.01-percent forecast for the full-year average inflation announced in December only incorporated an $80 to $100 per barrel assumption for oil.

“Oil prices just fell recently (so) the estimated average may be lower. The oil industry is very volatile (and) it can go one way or another in terms of direction,” Guinigundo said.

“If this continues to $47, $50, or $55 per barrel, definitely (inflation average) will be lower than three percent. It’s likely that the average could be lower than three percent but at this point, it’s hard to say,” he said.

The central bank casts its projections for average inflation during rate-setting meetings, the next of which is slated for Feb. 12.

Guinigundo said uncertainty remains on which direction the trend of oil prices will go, adding it can easily start shooting up just like how it fell in the middle of last year.

“It can go to the other extreme once Russia and Venezuela have problems. Shale oil is also having problems... that will be the time for OPEC (Organization for Petroleum Exporting Countries) to start reducing production,” Guinigundo said.

“It’s hard to say at this point because any reversal to the trend in oil prices is a risk because of geopolitical issues,” he said.

Asian benchmark Dubai crude has averaged $62.56 per barrel in December last year, below the $107.81-per-barrel average in June 2014 and the $103.99-per-barrel average back in January 2014.

Inflation last year peaked between May and August but improvement in supply conditions and cuts in pump prices helped anchor inflation expectations.

Moreover, the 50-basis-point hike in key policy rates in the third quarter last year helped ensure inflation would fall within the target range.

Inflation last year averaged 4.1 percent, well-within the BSP’s three to five percent goal. This was the sixth consecutive year the rate fell within the target range.

For this year and the next, the BSP has forecast inflation to settle within two to four percent.