Bank of the Philippine Islands, the third-largest lender in terms of assets, said over the weekend it is keeping its 2021 inflation forecast of 4.3 percent, as the higher global oil prices may fuel inflationary pressures in the coming months.
BPI lead economist Jun Neri said in a report inflation might exceed the upper bound of the target range of 2 percent to 4 percent for the year, as actual inflation hit 4.7 percent in February, the fastest in more than two years.
“Given the latest print, inflation will likely exceed the BSP’s 4-percent target. We are maintaining our full-year inflation forecast at 4.3 percent, taking into account the inflationary pressures that could persist until the third quarter,” Neri said.
“Inflation may exceed 5 percent in April and remain at that level for several months before going down in the fourth quarter. Oil prices will likely remain elevated given the expected increase in demand amid the distribution of vaccines,” he said.
Neri said the benchmark price of oil in the global market rose to $63 per barrel in February, its highest since December 2019. He said oil supply had become tighter following the production cut done by Organization of Petroleum Exporting Countries and the snowstorm in the United States.
Traders were also pricing in the possibility of higher demand in the coming months given the distribution of vaccines in major economies, he said.
Neri said it might take the swine industry some time to address the African swine fever problem as supply problems usually last for months.
He said inflationary pressures would likely prevent the Bangko Sentral ng Pilipinas from cutting its policy rate further.
The BSP maintained the record-low policy interest rates of 2 percent in its first policy meeting for the year in February.
“Expanding the negative spread between interest rates and inflation may harm the economy in the long run and exacerbate portfolio outflows that could drive volatility in the currency market,” Neri said.
He said the possibility of a rate hike was slim right now given the economic situation, “but we are not discounting this especially if inflation becomes unmanageable.”
The Department of Finance also said in a statement Sunday that food productivity programs would go a long way in stemming the inflation problem. The Department of Agriculture earlier launched a comprehensive program to enhance productivity.
“The price rise is due mainly to regulated products with high tariff rates and non-tariff barriers,” the DOF said in an economic bulletin.
“Economic decision-makers need to ease these protective barriers to provide more competition to heavily protected domestic suppliers,” it said.