Government raises inflation forecast slightly higher

MANILA, Philippines —  The Marcos administration expects inflation to rise to 4.5 percent to 5.5 percent this year from the previous forecast of 3.7 percent to 4.7 percent amid continued external factors that weigh heavily on the local commodity basket.

The Development Budget Coordination Committee (DBCC) announced the jacking up of inflation forecast from the previous expectation set by the Duterte administration.

Budget Secretary and DBCC chair Amenah Pangandaman said the economic team took into account the administration’s priorities and fiscal strategy, latest domestic developments, and external pressures.

“The average inflation rate assumption for 2022 remains elevated, following the uptick in prices of fuel and food as a result of the ongoing Russia-Ukraine conflict and disrupted supply chains,” Pangandaman said.

Likewise, the DBCC adjusted upward the inflation for 2023 to 2.5 to 4.5 percent from the two to four percent earlier.

Inflation hit 6.1 percent in June as oil prices continued to soar, bringing the average rate to 4.4 percent.

The DBCC said it would only return to the target band of two to four percent by 2024 and would remain on that level until the end of the administration.

The assumption for the price of Dubai crude oil, however, was retained at $90 to $110 per barrel this year before slightly going down to $80 to $100 per barrel next year.

By 2024, it is projected to further decline to $79 to $90 as oil supply is expected to catch up and stabilize over the medium-term.

In terms of gross domestic product, the DBCC retained its assumption mentioned by Finance Secretary Benjamin Diokno a few days ago that the economy would grow by 6.5 to 7.5 percent this year.

“The increase in household consumption and private investments, along with a robust manufacturing industry, high vaccination rate, improved health care capacity, and the upward trend on tourism and employment have allowed us to safely reopen the economy and register a positive growth for the first three months of 2022,” Pangandaman said.

“This momentum is expected to continue for the rest of the year. This growth will be sustained and expanded to 6.5 to eight percent by 2023 to 2028,” she said.

DBCC has also retained its peso-dollar exchange rate assumption for this year at P51 to P53.

However, this will likely hit P51 to P55 starting next year due to heightened global uncertainty such as the aggressive monetary policy tightening by the US Fed, market aversion amid Russia-Ukraine conflict, and increased global oil prices.

Meanwhile, goods imports growth forecast was increased to 18 percent from 15 percent earlier while exports projection was maintained at seven percent.