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Philippines: Economists recast inflation forecast above 5% for 2018
MANILA, Philippines — Economists now expect the full year inflation breaching five percent after racing above six percent for the first time in more than nine years to 6.4 percent in August amid elevated oil and food prices.
Noelan Arbis, economist at HSBC, said in a recent research note inflation may rise to an average of 5.2 percent for the whole of 2018 and 4.5 percent next year.
Arbis said inflation for 2018 and 2019 would exceed the two to four percent target set by the Bangko Sentral ng PIlipinas (BSP).
“But three consecutive months of higher-than-expected print has a more notable consequence: It means that inflation is now likely to average above the BSP’s two to four percent target for two consecutive years,” Arbis said.
The last time inflation averaged above five percent was in 2008 when it settled at 8.3 percent.
The economist said HSBC expects a 25 basis point rate hike on Sept. 27 followed by another 25 basis points in the fourth quarter.
Arbis expects further monetary tightening with another 25 basis points in January as the second tranche of excise tax increases under the Tax Reform for Acceleration and Inclusion (TRAIN) Law take effect.
“These are likely to spur higher inflation expectations, and the fact that headline inflation is now likely to breach the BSP’s two to four percent target for the second consecutive year in 2019 means that the BSP must remain on guard for further monetary tightening,” Arbis said.
For his part, ING Bank Manila senior economist Joey Cuyegkeng said inflation would average 5.1 percent this year.
“We expect inflation to remain elevated for the rest of the year with next month’s inflation rate likely to remain above six percent and full-year average inflation at 5.1 percent, significantly higher than the target range of two to four percent,” Cuyegkeng said.
Cuyegkeng said the BSP is likely to deliver another 50 basis point hike on Sept. 27.
“Inflation expectations remain on an uptrend and increase demand pull pressures as consumers and businesses anticipate elevated prices. The central bank needs to contain run-away inflation expectations and demand pull pressures. The chances of another aggressive monetary policy action have increased as inflation has surged,” Cuyegkeng said.
Source: https://www.philstar.com/business/2018/09/07/1849261/economists-recast-inflation-forecast-above-5-2018#Ar9GOYyvIMCWotxS.99