BSP hikes average inflation projections for 2021-2022

MANILA – The average inflation for this year is now projected to exceed the government’s 2-4 percent target band due to supply-side pressures while the 2022 forecast was hiked on expected recovery of the global economy.

In a briefing via the Bangko Sentral ng Pilipinas’ (BSP) Facebook page Thursday, BSP Deputy Governor Francisco Dakila Jr. said the latest 2021 rate of price increases projection is 4.2 percent while the 2022 projection is 2.8 percent.

These were at 4 percent and 2.7 percent for 2021 and 2022, respectively, during the rate-setting meeting of the BSP’s policy-making Monetary Board (MB) last Feb. 11.

Dakila cited two factors as the primary reasons for the projection adjustments.

One of these is the further acceleration of the February 2021 inflation rate to 4.7 percent from month-ago’s 4.2 percent due to the impact of the African swine fever and the higher prices of oil in the international market.

He, however, maintained these factors are transitory.

“And so we are actually seeing that (the) inflation path will decelerate below the midpoint of the target range towards the fourth quarter of this year and continuing on (the) first quarter of next year before settling close to the mid-point by the second half of next year,” he added.

The second factor for the upward adjustment in the BSP’s average inflation forecasts for this and next year is the outlook for international oil prices.

“As we know, the rollout of the vaccines globally has led to an improved outlook for global performance,” he said of the projection of higher oil prices.

Last February, the MB-approved 2021 average price of Dubai crude oil was USD54.65 per barrel but this has been changed to USD61.37 per barrel.

For 2022, the previous forecast is USD51.90 per barrel but this is now at USD57.79 per barrel.

“As the global economy recovers, the oil prices will also recover and this has an impact on inflation,” Dakila said.

He said central bank officials expect inflation to stay above the upper end of the target band until the third quarter of the year but is not expected to hit 5 percent.

Dakila said they continue to monitor for any second-round effects, or if there would be petitions for electricity or fare hikes.

“But as of the moment, there is really no evidence of any spillovers to other commodities apart from those that are subject to the supply shocks and these commodities are few key food items, including meat in particular,” he added.