MANILA, Philippines — Private sector economists expect inflation to remain stable over the next three years, with the rate expected to stay within the two to four percent target range of the Bangko Sentral ng Pilipinas (BSP) until 2026.
Based on the central bank’s survey of external forecasters for October, mean inflation forecasts for 2024 and 2026 were unchanged at 3.4 and 3.2 percent, respectively, compared to the forecasts a month ago.
On the other hand, the projection for 2025 went down slightly to three percent from 3.1 percent in the previous September survey.
“Analysts consider the inflation risks to be broadly balanced, with headline inflation expected to remain low and within-target over the policy horizon,” the BSP said.
Headline inflation went up to 2.3 percent in October from a four-year low of 1.9 percent in September. Year to date, inflation averaged 3.3 percent.
The BSP sees full-year inflation easing to 3.1 percent in 2024 from six percent last year. However, inflation could pick up to 3.3 percent in 2025 and 3.7 percent for 2026.
“On balance, the within-target inflation outlook and well-anchored inflation expectations continue to support the BSP’s shift toward less restrictive monetary policy,” the central bank said.
“Nonetheless, the monetary authority will continue to closely monitor the emerging upside risks to inflation, including geopolitical factors,” it said.
The BSP’s Monetary Board decided to cut interest rates for a second straight meeting in October. It slashed borrowing costs by 25 basis points, bringing the key rate down to six percent.
The BSP said the balance of risks to the inflation outlook has shifted toward the upside for 2025 and 2026. This is mainly due to potential adjustments in electricity rates and higher minimum wages in regions outside Metro Manila. However, the impact of lower import tariffs on rice continue to be downside risks.
El Niño-Southern Oscillation neutral conditions could also continue to persist. But most climate models suggest a high probability of a weak La Niña forming before the end of 2024 and continuing through the first quarter of 2025, the BSP said.
The escalation of war in the Middle East could also affect other major oil-producing countries in the region. But weak global demand, especially from China, and the expected unwinding of Organization of the Petroleum Exporting Countries (OPEC) cuts in December are downside risks to oil prices.
Meanwhile, the Monetary Board expects strong domestic economic growth over the coming year as the reduction in interest rates and in reserve requirements will support economic activity
“The forecast is consistent with the small negative output gap in 2024 and 2025, which is expected to turn positive in 2026. The steady upturn in the output gap reflects improved prospects for household consumption, investments and government spending,” the BSP said.
The Monetary Board will next meet on Dec. 19 to discuss policy.