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Philippines: Inflation seen averaging 5.3% in 2021 – think tank
MANILA, Philippines — Inflation for the year is seen breaching the government’s upper target and to average at 5.3 percent, more than double the 2020 level, as elevated oil prices and meat supply remain a concern, a foreign think tank said.
In its weekly monitor, UK-based Pantheon Macroeconomics said headline inflation the rate of increase in the consumer price index would likely average at 5.3 percent for 2021 before easing to 4.4 percent next year.
Pantheon’s latest estimate is more than double the 2020 inflation rate of 2.6 percent and is well above the Bangko Sentral ng Pilipinas (BSP) revised upper target of four percent.
Pantheon senior Asia economist Miguel Chanco said oil prices and supply side constraints, especially on meat, are still major concerns in the country.
During last week’s policy meeting, the BSP did not provide any update on its oil price forecast, which Chanco said only means that it has a blind spot to the upside risks to inflation still posed by oil prices.
BSP’s last forecast in May for Dubai crude oil is at $63 per barrel this year, still within range as the year-to-date average is currently at $62.9.
“But, prices have risen by eight percent since to $71.5, and they would have to fall by 23 percent before the end of the year for the BSP’s forecast to hold,” Chanco said.
“This is a pipe dream as the move back to pre-COVID-19 levels of domestic trips, let alone international travel, still has a long way to go. Crucially, much of the upside in headline inflation over the next two quarters is already baked-in,” he said.
He added that continued gains in oil prices point to a clear trebling of the component’s contribution to inflation throughout the third quarter.
On the supply side, the BSP is banking on the reduction of import tariffs and the increase in volume to be imported to tame food inflation and contribute to the easing of the overall rate.
However, Chanco argued that such a move has failed to account that the Philippines remains a net importer of many food products and that global food inflation is also on a rapid acceleration as the world economy recovers from the pandemic.
“These upward pressures will eventually land on the country’s shores as local food inflation lags by approximately six months,” Chanco said.
“From the BSP’s perspective, the looming inflation shock will make its current situation between a rock and a hard place even more uncomfortable,” he said.
The economy is nowhere near a better recovery, already taking into consideration a second wave survival and increasing vaccination rates.
The think tank emphasized that it is impossible for the Philippines to achieve herd immunity next year, keeping BSP’s finger off the trigger to normalize policy.
“Demand for shots likely will pose a significant hurdle, too, as the Philippines has one of the highest rates of vaccine hesitancy globally,” Chanco said.
Latest data from the Department of Health showed that the Philippines has administered some 10.07 million doses.
About 2.3 percent or 2.53 million Filipinos have been fully vaccinated while those who were given at least one dose reached 7.74 million or some 6.9 percent of the population.
Source: https://www.philstar.com/business/2021/06/29/2108737/inflation-seen-averaging-53-2021-think-tank