PRIVATE economists expect a lower inflation in 2016 and 2017 due mainly to declining oil prices in the global market and reduced domestic utility rates, a survey of the Bangko Sentral ng Pilipinas last month showed.
“The average annual inflation forecasts for 2016 and 2017 declined to 2.5 percent and 2.7 percent [from 2.7 percent and 2.9 percent], respectively,” the survey said. The previous forecasts were done in the third quarter 2015.
“The analysts attributed their lower inflation expectations mainly to lower global oil prices and lower domestic utility rates,” it said.
These are likely to outweigh the upside risks brought about by the El Niño dry spell, typhoons, increased expenditure from the upcoming national elections in May, robust consumer spending during the holiday season, weakening of the peso, and possible adjustments in utility rates.
Latest data from Bangko Sentral showed that the average price of Dubai crude oil dropped further in the fourth quarter by 18 percent from a quarter ago.
“The continued decline in global oil prices can also be attributed to Opec’s [Organization of Petroleum Exporting Countries] recent decision to retain current production quotas during its last policy meeting on Dec. 4,” Bangko Sentral said.
Inflation in 2015 averaged 1.4 percent, well below the government’s official forecast range of 2 percent to 4 percent. Inflation rose to 1.5 percent in December from 1.1 percent in November.
The manageable inflation environment prompted the Monetary Board to keep the benchmark interest rates steady on its last meeting for 2015 on Dec. 17. It was the tenth consecutive time since October 2014 that the rates were maintained.
Key policy rates were kept steady at 4 percent for the overnight borrowing and 6 percent for the overnight lending. The interest rates on term RRPs, RPs, special deposit accounts, and reserve requirement ratios were likewise left unchanged.
The Monetary Board’s decision was based on its assessment of inflation dynamics and the risks to the inflation outlook over the policy horizon. Latest baseline forecasts indicated that average inflation would likely settle below the target range of 2 to 4 percent for 2015.
The board kept the inflation average forecast for 2015 at 1.4 percent.
However, the forecast for 2016 was increased to 2.4 percent from the previous estimate of 2.3 percent made on Nov. 12 policy meeting. The 2017 forecast was also adjusted upward to 3.2 percent from 2.9 percent.
Before 2015 ended, Bangko Sentral announced that the inter-agency Development Budget Coordination Committee kept the 2 percent to 4 percent target range for inflation from 2016 to 2018, saying it remained suitable and consistent with the economy.