MANILA\u00a0— An economist at ING Bank Manila kept his 3.7 percent inflation forecast for the Philippines for 2018 even with the upward revision of the Bangko Sentral ng Pilipinas (BSP) average inflation forecast for next year.<\/p>\n
BSP\u2019s policy-making Monetary Board (MB) increased its inflation forecast for next year to 3.4 percent from 3.2 percent on increased pressures from upticks in oil prices in the international market. It, however, maintained its 3.2 percent forecast for 2017 and 2019.<\/p>\n
In a research note, ING Bank Manila senior economist Joey Cuyegkeng said, \u201cWe expect inflation pressure to remain,\u201d thus, the bank’s higher inflation forecast than that of the central bank.<\/p>\n
\u201cThis upward inflation forecast revision implies that inflation in 2018 may test the upper end of the two-percent to four-percent inflation target range (of the government),\u201d he said.<\/p>\n
Cuyegkeng traced the upside risks to inflation to higher global oil prices and the impact of the first package of the proposed tax reform, which is expected to take effect on January 1, 2018.<\/p>\n
The first package involves the cut in personal income tax, impact of which on government revenues will be countered by hikes in oil excise tax and sugar tax as well as removal of value-added tax (VAT) exemptions of some sectors.<\/p>\n
Cuyegkeng said the weakness of the Philippine peso is seen to continue \u201cin the medium term as a result of further deterioration of the country\u2019s trade balance and inadequacy of overseas worker remittances to finance the trade deficit.\u201d<\/p>\n
\u201cDemand-pull pressures are likely to come from higher take-home pay as a result of the tax reform package\u2019s cut in individual income tax rates and higher threshold income tax levels per tax bracket,\u201d he said.<\/p>\n
With prices seen to post higher levels due partly to the tax reform, Cuyegkeng said this \u201cmay generate instability in inflation expectations requiring some tightening action from BSP in 2018.\u201d<\/p>\n
\u201cWe are in line with the consensus forecast of two 25bps rate hikes in 2018. We believe BSP may hike rates in second quarter and fourth quarter,\u201d he added.<\/p>\n
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