Economists forecast '6%-level' August inflation

By Joann Villanueva

August 31, 2018, 8:03 pm

MANILA -- Private-sector economists forecast August's inflation to be in the "six percent-level", slightly higher than what their counterparts in government are predicting.

In a report released Friday, ING economist for Asia Prakash Sakpal forecasts “inflation surging past the six percent mark for the first time in over a decade.”

The inflation report for August this year is among there important data that market players are awaiting, he said. “Bad inflation data will keep the central bank (BSP) on its toes, even as the currency (PHP) has stabilized from a Turkish-led downturn in early August,” he said.

The government is scheduled to release the August 2018 inflation report next week.

Last July, inflation rose to multiyear high of 5.7 percent on account of food inflation, driven by the rising prices of rice, among others.

Sakpal said the elevated domestic inflation rate along with deficits in trade as well as government’s budget contributed to the depreciation of the peso against the US dollar by around 6.6 percent to date.

The uptick of inflation prompted monetary officials to raise the BSP’s key rates by a total of 100 basis points to date. For one, rate of the BSP’s overnight reverse repurchase (RRP) facility is currently at four percent.

Sakpal, however, raised the question whether monetary officials will “overlook the inflation data and wait for the recent 100 basis point rate hike to take effect” before they decide on another hike to lessen pressure on the local currency. He said “the current economic backdrop suggests the BSP policy tightening has further room to run.”

The next rate setting meet of the central bank’s policy-making Monetary Board (MB) is scheduled on September 28 and the ING economist forecast the Board to keep the BSP’s rate steady during the said meeting “but hike again in the final quarter of the year.”

For his part, Landbank market economist Guian Angelo S. Dumalagan forecast inflation this month to hit six percent, which, he said, may be a factor for another increase in the central bank’s key rates.

In an interview by PNA, the economist said the BSP is expected to continue hiking rates if inflation remains on the uptrend. “A rate hike will be contingent on the inflation data. If it still accelerates there can be a 25bps - 50bps hike but if it plateaus or falls then BSP could hold off,” he added.

On Friday, the BSP said it forecasts inflation to increase to about 5.9 percent or stay within the range of 5.5 – 6.2 percent. (PNA)