Economic think tanks: PH inflation is likely to intensify

Inflation in the Philippines

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MANILA, Philippines — Much like the Bangko Sentral ng Pilipinas (BSP), economic think tanks monitoring the Philippines have signaled heightened inflation risks, but they are still split on when to raise rates to ease the tide. upward pressure on prices.

“As inflation recovers above 4% in the coming months amid strong momentum to reopen activity, we continue to expect BSP to start tightening monetary policy in the second half of the year. , rising 25 basis points (bps) each in the third and fourth quarters of 2022,” Goldman Sachs Economics Research said in a report.

While the BSP kept the policy rate at a record 2% last Thursday (March 24), it raised its headline inflation forecast for 2022 to an average of 4.3%, above its target range. 2 to 4% manageable price increases in an expensive context. oil and other foodstuffs – a global ripple effect of Vladimir Putin’s campaign to destroy Ukraine.

“As the BSP warned, an escalation in inflation risks that significantly shifts inflation expectations would skew risks towards a path of rate hikes faster than our forecasts,” the banking giant said. investment company Goldman Sachs.

Singapore-based United Overseas Bank (UOB) expects the BSP to raise its key interest rates by 25 basis points as early as the second quarter of this year, followed by hikes of 25 basis points in the third and fourth quarters. to increase the overnight reversal repurchase rate (RRP) to 2.75% in 2022.

“While the BSP continues to rely on non-monetary measures to tame inflation for now, it remains to be seen whether these measures are sufficient to contain potential second-round inflation effects amid petitions for an increase in the minimum wage and public transport fares,” said UOB Senior Economist Julia Goh and Economist Loke Siew Ting.

“This, along with a more hawkish tilt from the Fed and further improvement in domestic economic activity, will likely cause BSP to push back its rate hike schedule until the second quarter of 2022, in our view,” the statement said. ‘UOB, referring to the US Federal Reserve. plan to raise rates aggressively this year after this month’s 25 basis point hike.

Two UK-based think tanks, Capital Economics and Pantheon Macroeconomics, maintained similar forecasts that the BSP will keep policy interest rates stable throughout the year as the economic recovery remains fragile.

“The rise in inflation should prove temporary and we expect it to return to the central bank’s target range of 2-4% by the end of the year. Core inflation is expected to remain subdued throughout 2022,” said Alex Holmes, economist at Capital Economics Asia.

For Capital Economics, what is more concerning is that the Philippines’ growth after its pandemic-induced collapse two years ago has faced “increasing” headwinds. “The consumer-driven economy is vulnerable to the global commodity price spike due to the war in Ukraine, which will leave a significant dent in consumers’ purchasing power,” he said.

“We recently cut our GDP growth forecast for the year from 8% to 7.2%. This would leave the economy still 13% smaller than its pre-pandemic trend by the end of 2022,” he added.

Pantheon Macroeconomics’ senior economist for Asia, Miguel Chanco, said that despite the BSP’s higher inflation forecast for 2022, “we doubt for several reasons that this upgrade portends the start of normalization” or interest rate hikes.

“To begin with, the PASB had no choice but to make a strong statement, following the surge in world oil prices caused by Russia’s invasion of Ukraine, for fear of risking losing credibility,” Pantheon said.

“Secondly, the [Monetary] The Board’s inaction over the past year has strongly exposed the accommodative inclination of its current members. Third, it looks like [BSP was] set an even higher bar for inflation to drive policy forward,” he said.

“Fourth, the [central bank’s] the new inflation forecasts are arguably pessimistic as oil price disinflation still looks set to take hold from the third quarter, although on average above the revised BSP benchmark,” according to Pantheon .

“Finally, and more fundamentally, we continue to believe that the Philippines’ growth outlook this year is grossly inflated,” he said.


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