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Philippines: IMF reviewing 3% inflation forecasts

MANILA, Philippines — Multilateral lender International Monetary Fund (IMF) is revisiting its inflation forecasts to take into consideration the impact of the tax reform law, foreign exchange movement and agricultural output.

YongZheng Yang, IMF resident representative for the Philippines, said in an email to The STAR the agency is now reviewing its three percent inflation forecasts for 2018 and 2019.

“Yes, we will be reviewing our inflation forecasts, as part of our routine work. Our current forecast is that inflation will stay within two to four percent for 2018,” Yang said.

The Bangko Sentral ng Pilipinas (BSP) has set an inflation target of two to four percent between 2018 and 2020. Based on the latest assessment of the BSP, inflation may accelerate to 3.4 percent this year before easing to 3.2 percent next year.

Inflation kicked up to 3.2 percent last year from 1.8 percent in 2016 primarily due to higher global oil prices.

Economists see inflation breaching the higher end of the BSP target this year due to second round effects of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law signed by President Duterte last Dec. 19.

The law lowered personal income tax but imposed higher excise tax on fuel, sweetened beverages, among others.

“Apart from the TRAIN law, other major factors affecting inflation are commodity prices, exchange rate movements, and weather conditions that affect agricultural output,” he said.

In its latest Staff Report for the 2017 Article IV Consultation released last November, IMF said inflation is projected at the center of the two to four target band but there are upside risks from commodity prices, pass through from peso depreciation, electricity tariffs, fuel excises, and robust economic and credit activity.

It stated the BSP should be ready to tighten if signs of overheating emerge.

“The BSP must continue to be vigilant to risks of overheating. An acceleration in credit growth with rising inflation, a stronger-than-expected impact of the fiscal expansion on inflation, or rising external pressures could warrant monetary policy tightening,” the IMF said.

Source: http://www.philstar.com/business/2018/02/05/1784576/imf-reviewing-3-inflation-forecasts