MANILA, Philippines — Inflation is likely to fall below three percent in the first quarter before accelerating starting the second quarter, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.
“For this year, inflation is likely to be lower than the midpoint in the first quarter before it goes above the midpoint from the second to fourth quarter, ‘’ Diokno said.
Inflation slowed to a 12-month low of 3.6 percent in December from 4.2 percent in November last year.
The average inflation for 2021 accelerated to 4.5 percent from 2.6 percent in 2020 due to elevated food prices brought about by weather-related disturbances and the African swine fever outbreak, as well as rising global oil price on the back of further reopening from strict COVID lockdowns.
Based on its latest assessment, the Monetary Board sees inflation easing to 3.4 percent this year and further to 3.2 percent next year.
Diokno said the BSP’s inflation projection is based on the assumption that Dubai crude oil would average $72.66 per barrel in 2022 and $68.74 per barrel in 2023.
Monetary authorities, he explained, explored various oil price scenarios ranging from $50 to $100 per barrel, sustained starting January this year.
Diokno said the results of the simulation showed that inflation could settle above the target range if crude oil prices average higher than $95 per barrel for 2022 and 2023.
He said the scenario considers only the direct effects and does not incorporate any potential second round effects on transport fares, food prices, and wage increase among others.
“Other things constant, our inflation forecasts for 2022 and 2023 would hold unless world crude prices settle above $95 per barrel from January 2022 until December 2023,” Diokno said.
According to the BSP chief, the oil industry would be in surplus this year compared to a deficit position last year when demand exceeded supply.
For one, he said the Organization of the Petroleum Exporting Countries announced it would increase its output starting next month, while international travel continues to be down amid the resurgence of COVID cases due to the more contagious Omicron variant.
Likewise, Diokno said most advanced economies and many emerging economies are facing persistently elevated inflation, while countries with oil reserves, including the US and the United Kingdom, could be compelled to release their oil reserves.
Diokno earlier said the Monetary Board is unlikely to tweak interest rates in the first half, as the BSP vowed to do whatever it takes to help the economy fully recover from the pandemic-induced recession.
The central bank has kept an accommodative monetary policy stance by maintaining a low interest rate environment for more than a year to boost economic activity.