Inflation is expected to settle below the target range of 2 percent to 4 percent this year due to slower increases in food prices, the Bangko Sentral ng Pilipinas said in a report Friday.
“Latest baseline inflation forecasts show that inflation is likely to settle slightly below the target range of 2 percent to 4 percent for 2015 before rising gradually toward the midpoint of the target range [of 2 to 4 percent] in 2016-2017,” the report for the third quarter this year said.
“Risks to the inflation outlook continue to be broadly balanced. Pending petitions for power rate adjustments and the impact of stronger-than-expected El Niño weather conditions on food prices and utility rates are seen to pose upside risks to the outlook,” it said.
Downside risks, on the other hand, could stem from slower-than-expected global economic activity and petitions for lower transport fares.
It said while inflation expectations have breached the lower end of the 2015 target band, they remained within the inflation target range over the policy horizon.
“Nevertheless, domestic economic activity continues to expand at a solid pace, as credit and liquidity growth remains in step with the overall requirements of the economy. Volatility in the global financial market resulting from slower growth in China and the expected normalization of monetary policy in the US could be an important consideration for the inflation outlook in the quarters ahead…,” the report said.
Inflation in September further slowed down to 0.4 percent from 0.6 percent in August. It was also significantly slower than the 4.4 percent during the same month last year.
This brought the average in the first nine months to 1.6 percent, way below the government’s official target of 2 percent to 4 percent for 2015. The downtrend was primarily due to the annual declines in the indices of housing, water, electricity, gas and other fuels and transport.
Earlier this week, Bangko Sentral Governor Amando Tetangco Jr. said monetary authorities would assess the impact of the agricultural damage brought about by typhoon Lando to consumer prices to see if there would be a need to alter the inflation forecasts this year and beyond.
Tetangco said the Bangko Sentral expects to receive a report soon coming from the Agriculture Department about the extent of the damage to the agricultural sector, especially in northern Luzon which was the most affected by the disaster.
Tetangco said there must be a need to recalculate the inflation path to see how it was “affected by the recent developments, particularly on oil prices [which slightly recovered] and the impact of the latest natural calamities.”
The Monetary Board, the policy-making body of the Bangko Sentral, on Sept. 24 kept the benchmark interest rates steady at 4 percent for overnight borrowing and 6 percent for overnight lending—the eighth time since October last year—due to a manageable inflation environment.