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Philippines: Citi hikes inflation forecast to 3.6%
MANILA, Philippines — Global banking giant Citi has raised its inflation forecast for the Philippines over the next two years, but expects the Bangko Sentral ng Pilipinas (BSP) to keep rates at an all-time low of two percent until the middle of next year to help the economy recover from the pandemic-induced recession.
Citi economist Nalin Chutchotitham said they now see inflation at 3.6 percent instead of 3.3 percent this year, and to 2.8 percent from 2.5 percent in 2022 as managing the consumer price index has become more challenging due to high food prices.
Inflation accelerated to a two-year high of 4.2 percent in January from 3.5 percent in December, breaching the two to four percent target range set by the BSP.
This prompted the central bank’s Monetary Board to raise its inflation forecast to four percent from an earlier projection of 3.2 percent this year as the consumer price index (CPI) is seen remaining elevated in the next few months.
Chutchotitham pointed out authorities have so far taken steps to curb meat prices and ease shortage problems that are the key contributors to the recent surge in inflation.
The Citi economist added that runaway inflation similar to 2018 could dampen household spending and limit the BSP’s policy options.
Inflation is also seen easing in the second half due to waning effects from transport services.
“Inflationary pressures are not broad-based and likely to ease in H2. It remains to be monitored if food prices would be tamed soon enough, and there remain some upside risks from higher oil prices too,” Chutchotitham said.
According to Citi, its indicator of inflation pervasiveness shows that only 20 percent weight of the CPI basket have higher than four percent inflation.
It added inflation would remain manageable and stay within the central bank’s two to four percent target as the high unemployment rate would keep wage inflation in check.
Majority of analysts likewise expect the BSP to keep interest rates unchanged amid the surge in inflation.
“The Monetary Board mentioned that the inflation outlook remains manageable, allowing it to maintain an accommodative policy to support the economic recovery and market confidence. We share similar views and expect the BSP to remain on hold until at least mid-2022,” Chutchotitham said.
Economic managers penned a recovery with a gross domestic product (GDP) growth of 6.5 to 7.5 percent this year and eight to 10 percent next year after a record 9.5 percent contraction last year due to the impact of the COVID-19 pandemic.
“We expect the economy to continue to recover and do not see a need for further monetary easing. But should growth disappoint, the BSP’s hands might be tied at least through H1, before inflation peaks,” the economist said.
Source: https://www.philstar.com/business/2021/02/17/2078217/citi-hikes-inflation-forecast-36