Inflation seen higher than ’21 target band


PRIVATE economists in the country see inflation hitting higher than earlier expected for this year, a recent Bangko Sentral ng Pilipinas (BSP) survey showed.

As of September this year, a survey of 21 bank economists forecasted average inflation in the country to hit 4.3 percent —further away from the 2 to 4 percent target band for 2021 and higher than the 4.1 percent average forecast just three months prior.

According to the BSP, analysts expect inflation to remain above the upper end of the government’s target range in 2021, with upside risks including supply disruptions brought about by the reimposition of stricter quarantine measures, adverse weather conditions during the rainy season, persistence of the African Swine Fever, rising global crude oil prices, and weakening of the peso against the US dollar.

The expectation could be tempered, however, by potentially subdued domestic demand due to low purchasing power brought about by high unemployment and the prolonged and stricter lockdown measures amid the local transmission of the Delta variant, which could weigh down on recovery efforts.

For next year, the average inflation forecast based on the survey was unchanged at 3.2 percent, while the mean inflation forecast for 2023 was higher at 3.2 percent from 3.1 percent.

Based on this analysis, private economists forecast the BSP keeping current policy settings unchanged for the rest of 2021 to support the economy’s gradual recovery.

Meanwhile, most of the analysts anticipate the BSP to end its accommodative stance by end-2022.

BSP Governor Benjamin Diokno earlier said the BSP’s assessment continues to show inflation taming back to within target levels in the coming months.

“The BSP staff forecasts that average inflation this year will be about 4.5 percent, slightly above the upper range of the target 2 to 4 percent. Inflation is expected to settle at an average of 3.3 percent in 2022,” Diokno said.

“What’s the implication on monetary policy? Since the inflation pressures are coming from the supply side, there appears to be no justification for monetary intervention.

For example, would an interest rate hike bring about higher world crude supply? Of course not,” the governor added.

The BSP has been keeping its record-low monetary policy rates for the entire year in an effort to support the country’s recovery.

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