GROWTH in consumer prices is still expected to overshoot the government’s target range for this year due to local and external developments, the Bank of the Philippine Islands (BPI) said.
In a recent analysis after the Philippine Statistics Authority (PSA) announced a slower inflation in June, BPI economists announced that they have revised their inflation forecast for this year from the earlier average of 4.5 percent down to 4.3 percent.
“We continue to see upside risks that could keep inflation above 4 percent in the coming months. Despite the reduction in pork tariffs, the price of pork has not shown a substantial decline. Moreover, oil companies have announced several oil price hikes in recent weeks and could translate to less favorable base effects for transport,” BPI said in a statement.
“Upward pressure on global oil prices has persisted amid the reopening of major economies. The recent depreciation of the Peso will likely result in additional importation costs. With the restrictions on public transport capacity, this might force operators to increase their fares,” the bank added.
Just last month, the Bangko Sentral ng Pilipinas (BSP) expressed confidence that inflation will still average within the 2- to 4-percent target band for the year despite the elevated print in the early months of the year.
In their latest monetary policy meeting, the BSP announced their expectation of a 4-percent average inflation for the entire year, hitting the ceiling of their target range for the year.
Inflation has now reached an average of 4.4 percent in the first half of the year after posting a 4.1-percent print in June. This means that inflation should reach an average of 3.6 percent in the second half of the year to reach the BSP’s projection.
BPI also warned of a possible erosion of the country’s dollar defenses this year.
“The Philippines has managed to keep its credit rating despite the huge contraction last year. One of the metrics that have protected the country from a downgrade is the gross international reserves [GIR] to foreign debt ratio,” BPI said.
“The country’s GIR has increased in the past year given the huge decline in imports and the Dollar printing done by the Fed. But with the US central bank now hinting at the possibility of tighter policy and with imports now increasing, the country’s GIR could decline substantially moving forward,” it added.
The country’s GIR level hit $106.98 billion in May, equivalent to 12.2 months’ worth of imports of goods and payments of services and primary income.