Economists raised inflation outlook for 2023 — BSP

PRIVATE SECTOR economists raised their inflation outlook for the year amid supply constraints and strong consumer demand, although they expect inflation to ease toward the 2-4% target by yearend, the Bangko Sentral ng Pilipinas (BSP) said on Thursday. 

At the same time, National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said inflation is on its “downward trajectory” this year.   

“We are actively monitoring the situation and implementing the necessary measures to ensure that by the end of the year, we should be in our target of roughly 3.5-4%,” Mr. Balisacan said during a Palace briefing.

In its Highlights of the Monetary Board meeting on March 23, the BSP said inflation expectations remained high for this year due to supply shocks and demand-side pressures.   

“Inflation expectations stay elevated for 2023 and remain near the upper end of the inflation target range for 2024 and 2025, which suggests that the public’s expectations continue to be at risk of being disanchored by further shocks,” it said.   

The BSP said the mean inflation forecast of analysts for this year inched up to 6.1% in the March survey from 6% in February. This was slightly above the central bank’s 6% forecast for 2023.

On the other hand, economists lowered their average inflation forecast for 2024 and 2025 to 3.7% (from 4%) and 3.6% (from 4.1%).   

The economists’ 2024 inflation forecast of 3.7% is still higher than the BSP’s 2.9% projection.

However, analysts expect headline inflation to begin decelerating by March, due to the impact of the central bank’s monetary tightening and higher base effects.   

Inflation eased to 7.6% in March from 8.6% in February and a 14-year high of 8.7% in January. This brought the average first-quarter inflation to 8.3%, well above the central bank’s 6% full-year forecast.

Since May 2022, the BSP has increased its benchmark rate by 425 basis points (bps) to 6.25% — the highest in nearly 16 years.   

“The Monetary Board deemed it necessary for continued monetary action and increased vigilance until there is firm evidence that inflation is reverting to the target in a sustained manner,” the central bank said.

“Monetary policy continues to be focused on anchoring inflation expectations, which remain near the upper end of the inflation target band. Follow-through monetary tightening will help anchor inflation expectations by underlining the BSP’s commitment to its price stability objective.”

The BSP said headline inflation could be above 4% until the third quarter due to strong domestic demand and supply constraints. This would indicate that inflation would be above target for 19 straight months since March 2022.   

But inflation is seen to ease near the lower end of the 2-4% target by the first quarter of next year mainly due to base effects and the likely decline in global oil and nonoil prices.   

BSP Governor Felipe M. Medalla earlier said the Monetary Board might revise its inflation forecasts for this year and 2024 after inflation eased in March.

Upside risks to the inflation outlook include the likely impact of rising transport fares, higher electricity rates, elevated food prices due to supply constraints, and above-average wage adjustments this year, according to the report.

“Inflation has proven to be much more persistent than originally expected at the beginning of supply shocks, and both BSP and the market have been consistently surprised on the upside in the past year,” the central bank said.

Meanwhile, the weaker-than-expected global growth this year is the main downside risk to the inflation outlook.

Mr. Medalla earlier noted that if inflation rate eased further in April, the Monetary Board might consider keeping policy rates on hold at its next meeting on May 18.   

He also said the Board might start discussing possible rate cuts if inflation slows down in the next six months. — Keisha B. Ta-asan