MANILA – An economist forecasts a decline in domestic inflation rate in June 2021 and a return to within the 3-5 percent target band in July after a steady rate of 4.5 percent in the last three months.
In a report dated June 7, ING Bank Manila chief economist Nicholas Mapa said base effects of lower inflation of pork and transport indexes are expected to decelerate headline inflation rate but he discounts a below 3 -percent print in the near term.
“Base effects will likely ebb and flow but a gradual reopening of both the Philippine and global economy could mean commodity prices will not likely crater like they did in 2020,” he said.
Domestic inflation rate posted a five-month rise from October 2020 to February 2021, with the January print breaching the target band when it accelerated to 4.2 percent.
It further rose to 4.7 percent the following month.
To date, average inflation stood at 4.4 percent and monetary authorities forecast the elevated inflation rate to last until the third quarter of this year.
Mapa said continued easing of quarantine levels “may also mean ‘Covid-surcharge’ will be a thing of the past which could help nudge headline lower still.”
However, he does not see immediate improvement in inflation rate because of demand amidst the easing of quarantine restrictions, citing that unemployment rate continues to be hit by the pandemic.
“This suggests that incomes will remain challenged in the near to medium term, and with incomes depressed, it would be very difficult to expect an environment of weak income to generate a scenario of too much money chasing too few goods,” he added.
Mapa said the Bangko Sentral ng Pilipinas’ (BSP) policy settings remain appropriate, with BSP providing enough policy support to help revitalize bank lending while still ensuring that any demand side inflation pressures remain at bay
“Thus, we reiterate our forecast for an extended pause from BSP until at least the 2H (second half) of 2022 barring any severe supply side shock that would jar inflation expectations and foment unwanted second round effects,” he added. (PNA)