Economists cut inflation forecasts for 2024,2025

MANILA, Philippines — Private economists expect the prices of basic goods and services to climb at a slower pace in 2024 and 2025 after inflation exceeds anew the target set by the Bangko Sentral ng Pilipinas (BSP) this year.

Dennis Lapid, officer-in-charge of the BSP’s Department of Economic Research, said inflation expectations for 2024 and 2025, as shown by the results of the BSP Survey of External Forecasters done from Aug. 5 to 9, have declined within the two to four percent target range set by the central bank.

Lapid said the August 2023 survey round on private economists’ inflation expectations showed a lower forecast of 3.5 percent from the original target of 3.6 percent for 2024 and further to 3.4 from 3.6 percent for 2025.

For this year, Lapid said the mean inflation forecast was unchanged at 5.5 percent.

“Analysts expect inflation to continue easing in the near term owing largely to negative base effects. Risks to the inflation outlook, however, remain tilted to the upside,” Lapid said.

Inflation accelerated to 5.8 percent last year from 3.9 percent in 2021, paving the way for the start of a tightening cycle by the BSP as early as May last year to tame inflation and stabilize the peso.

Inflation averaged 5.8 percent from January to July, still above the BSP’s target of two to four percent.

The inflation downtrend and stable local currency allowed the BSP to maintain a hawkish pause as it kept key policy rates untouched in the last three rate-setting meetings after a cumulative 425-basis-point rate hikes between May 2022 and March 2023.

“Analysts expect inflation to continue easing in the near term owing largely to negative base effects. Risks to the inflation outlook, however, remain tilted to the upside due mainly to supply disruptions, particularly the potential adverse impact of El Niño,” Lapid said.

The BSP raised its own inflation forecasts for this year to 5.6 percent from the original target of 5.4 percent, 3.3 percent from 2.9 percent for 2024 and 3.4 percent from 3.2 percent for 2025 due to rising global oil prices, higher-than-expected wage adjustments, as well as recent developments in the peso that almost touched the 57 to $1 level last week.

Lapid also cited the high prices of basic goods, particularly food and oil, as well as services such as restaurant and accommodation services due to supply factors attributed mainly to weather disturbances, such as typhoons and the threat of El Niño and the impact of trade restrictions on selected food items and oil production cuts by Organization of Petroleum Exporting Countries (OPEC) member states.

He said another upside risk to inflation would emanate mainly from second round effects, emanating particularly from higher transport fares and wages.

Lapid said a few analysts cited the lagged effect of the BSP’s successive monetary policy tightening, which is expected to temper inflation, as the main downside risk.

For 2023, Deutsche Bank and Al-Amanah Islamic Bank have the highest inflation forecasts at six percent followed by ING Bank, Bangkok Bank, CTBC Bank, Korea Exchange Bank, Maybank, Metrobank, Rizal Commercial Banking Corp. and Standard Chartered Bank at 5.6 percent.

Sun Life Investment Management and Trust Corp., EastWest and Mizuho Bank have the lowest inflation forecast for 2023 at five percent.

Al-Amanah Islamic also has the highest inflation forecasts for 2024 and 2025 at six percent.