Private sector economists who participated in a survey by the Bangko Sentral ng Pilipinas expect inflation rate to average 4.1 percent in 2019 and 3.8 percent in 2020, down from 5.2 percent last year.
“While analysts expect inflation to remain elevated in the near term, their assessment of the balance of risks to the inflation outlook has shifted toward the downside,” the Bangko Sentral said.
“Possible downside risks to inflation include declining global oil prices; easing prices of food and non-food items which seemed to have stabilized; implementation of mitigating measures to address domestic food supply issues such as rice importation; the recent and expectations of further policy rate hikes by the BSP; and the recovery of the Philippine peso against the US dollar,” the BSP said.
It said key upside risks to inflation would emanate from potential volatile global oil prices; possible depreciation of the peso against the US dollar; increased demand due to upcoming school enrollment and during the holiday season; geopolitical risks such as trade tensions; and the expected rise in transport fares and utility rates.
Meanwhile, inflation is anticipated to moderate over the medium term and revert to within the inflation target band of 2 percent to 4 percent as global oil prices decelerate and as monetary and non-monetary policy measures to temper inflation take effect.
The respondents assigned a 44.8-percent probability that inflation would fall within the 2 percent to 4 percent target range in 2019 and 53.6-percent chance that inflation would breach the upper end of the target.
Results of the Fourth Quarter 2018 BSP Business Expectations Survey showed that a smaller number of respondents were expecting inflation to rise in the current quarter (from a diffusion index of 68.6 percent to 62.1 percent).
Inflation eased to an average of 5.9 percent in the fourth quarter 2018 from 6.2 percent a quarter ago, due mainly to the moderation in food inflation as supply conditions improved for key food items.
This brought the full-year average inflation rate to 5.2 percent, which is above the government’s target range of 2 to 4 percent for the year.
Aside from food items, non-food inflation also eased in the fourth quarter, as lower international oil prices exerted downward pressure on transport inflation through lower gasoline and diesel prices.
The Monetary Board decided to raise the policy rate anew by 25 basis points during its monetary policy meeting on Nov. 15, 2018, given the assessment that the balance of risks to inflation were still weighted to the upside and inflation expectations have remained elevated.
The Monetary Board believed that favorable prospects for the domestic economy allowed some scope for a measured adjustment in the policy rate to rein in inflation expectations and preempt further second-round effects.
The Monetary Board deemed it necessary to respond with proactive policy action to help temper the risks to the inflation outlook, including those emanating from the continued uncertainty in the external environment amid tighter global financial conditions and trade tensions among major economies.
But inflation momentum continued to slow down in December as both food and non-food inflation eased, giving the BSP some latitude to allow its monetary policy adjustments throughout 2018 to work their way through the economy.
In deciding to maintain the BSP’s monetary policy settings during the Dec. 13, 2018 policy meeting, the Monetary Board noted that the latest inflation forecasts showed a lower path over the policy horizon, with inflation settling within the target band of 2 to 4 percent for 2019-2020.
Overall, the BSP has raised a total of 175 basis points in policy rate since May 2018 in a bid to curb the rising inflation.
Inflation peaked at a nine-year high of 6.7 percent in October, before easing to 6 percent in November and 5.1 percent in December as the immediate measures implemented by the government took effect.