PH inflation seen to fall below target in Q3 ’20 to Q1 ‘21

MANILA – The country’s inflation rate is seen to decelerate below the government’s 2 percent to 4 percent target starting in the third quarter of 2020 until the first quarter of next year because of the coronavirus virus 2019 (Covid-19) pandemic.

In a briefing held through the Facebook page of the Bangko Sentral ng Pilipinas (BSP) on Friday, director of the central bank’s Department of Economic Research, Dennis Lapid, said the rate of price increases is projected to be benign this year since the pandemic is expected to slow global economic growth.

“The key factors that will push down inflation for this year and also for next year have to do with a steeper slowdown in key economic activity and also a weaker prospect for domestic economic activity,” Lapid said.

He said the weaker global economic activity is expected to result in a decline in tourism receipts, trade, and remittances “that could be a downward influence to GDP (gross domestic product) growth.”

“The possibility of a longer imposition of containment measures, like the enhanced community quarantine, could exert a downward pressure on economic activity as well,” he added.

Economic managers, as well as BSP Governor Benjamin Diokno, forecast growth to be zero or even at -1 percent this year.

On Friday, the Palace announced another extension of the enhanced community quarantine (ECQ) in the National Capital Region (NCR) and select provinces until May 15 to ensure that the rise in the number of Covid-19 infections is controlled.

Lapid said this is among the factors that are in play and have contributed to the uncertainty in the inflation outlook.

“But the assessment is that the overall risks seem to be weighted towards the downside for the inflation forecast,” he added.

Lapid said inflation is seen to slowly rise to within-target levels in the second half of 2021.

He added that Philippine monetary officials “are not completely ruling out any problems or spikes in inflation this year” due to upside risks coming primarily from food prices.

Lapid traced the upside risks to higher rice import prices due to weather-related factors, the impact of the African swine fever (ASF) on meat products, and the possible production disruption and logistical bottlenecks or temporary supply issue of some food items.

The global pandemic is seen to reduce the growth of inflows from overseas Filipino workers (OFWs).

During the same briefing, BSP Assistant Governor Illuminada Sicat said the baseline forecast shows a growth of 3 percent for remittances this year.

“But considering that there are already OFWs being repatriated back, particularly from the sea-based sector, we see that there will be some contraction in remittances by about 0.2 to 0.8 percentage point,” she added.

Sicat said additional contraction is expected since the pandemic continues to bring out more economic issues.