The Bangko Sentral ng Pilipinas (BSP) said inflation for the month of August will be higher and could hit a peak of 4.9 percent versus four percent in July because of fuel and electricity costs.

29532

BSP Governor Benjamin E. Diokno, citing the BSP Department of Economic Research, said they forecast a range of 4.1 percent to 4.9 percent for August inflation, still above the two-four percent government full-year target.

“Higher prices for LPG, Meralco electricity, and key food items along with the depreciation of the peso are sources of upward price pressures during the month. These could be offset in part by the decline in domestic petroleum and rice prices,” said the BSP.

Analysts from the Metrobank unit, First Metro Investment Corp. (FMIC) and research partner, University of Asia and the Pacific (UA&P), said inflation “may not drop below four percent in the third quarter because of the low base a year ago.”

“But with crude oil prices sharply falling in August, and food prices stabilizing, it will likely go below that threshold early in the fourth quarter,” according to FMIC-UA&P’s latest “Market Call” report.

For the sixth policy meetings in a row, the BSP’s Monetary Board has kept the policy rate steady at two percent to support a recovering but still fragile economy.

The BSP sees 4.1 percent average inflation for 2021, and 3.1 percent for 2022 and 2023. As of end-July, the inflation has averaged at 4.4 percent, above the two-four percent BSP target.

The BSP said inflation remains “firmly aligned with the baseline projection path” of two-four percent despite risks to the inflation outlook including the spread of the more contagious COVID-19 Delta variant. They expect the average inflation to be in the upper band of the two-four percent for 2021 but these are still mostly due to supply-side pressures on meat and other food prices.

In the meantime, the central bank adjusted the 2021-2023 forecasts because of the higher global commodity prices and the depreciation of the peso.

FMIC-UA&P analysts said the peso vis-à-vis the US dollar has sharply depreciated beyond P50 as “the dollar remains strong as pulled by its fast-recovering economy and widening Philippine trade deficits as faster economic growth translates to more imports.”

The Metrobank unit expects the economy to grow by 5-6 percent this year, higher than the government’s recently revised 4-5 percent from its previous projection of 6-7 percent growth for 2021.

Analysts said overall outlook for the full-year gross domestic product (GDP) growth has “brightened with the second quarter data coming at the higher end of market expectations.”

The report noted however that based on a seasonally adjusted quarter-on-quarter data, GDP dropped by -1.4 percent. The “extent of the impact of the new lockdowns” are also yet to be determined. “These lead us to think that the low side of (or slightly below) our five percent to six percent full-year projection would land us in the safe zone,” said FMIC-UA&P.

The BSP has kept the benchmark policy rate at a record low of two percent since November 2020 in aid of an economy trying to pull itself out of a pandemic recession. This proved helpful with GDP recovering in the second quarter with a significant 11.8 percent growth.


Source: Manila Bulletin (https://mb.com.ph/2021/08/31/bsp-forecasts-4-1-4-9-august-inflation/?utm_source=rss&utm_medium=rss&utm_campaign=bsp-forecasts-4-1-4-9-august-inflation)