PRIVATE SECTOR analysts anticipate inflation to stay within the central bank’s 2-4% objective from this year to 2026, as stated by the Bangko Sentral ng Pilipinas (BSP).
The BSP’s most recent survey of external analysts in its Monetary Policy Report revealed that the average inflation projection for this year is at 3.1%, which is lower than the central bank’s baseline estimate of 3.3%.
The survey indicated an 82.6% chance that inflation will remain within the target this year and an 83.5% likelihood for 2026.
“Inflation expectations remain solidly anchored. The risks are generally well-balanced, and it is anticipated that headline inflation will remain low and manageable in the medium term.”
For 2026, analysts predict an average inflation of 3.2%, also below the BSP’s forecast of 3.5%.
Headline inflation averaged 3.2% in 2024, comfortably fitting within the target range. Data for January inflation will be disclosed on Feb. 5.
The survey highlighted that the favorable inflation outlook is primarily driven by decreasing prices for rice and oil.
“Downward risks to the inflation forecast are largely derived from falling rice prices, in light of the enforcement of Executive Order (EO) No. 62 and decreasing oil prices,” the BSP commented.
President Ferdinand R. Marcos, Jr. enacted EO 62 last June, which reduced rice import tariffs to 15% from 35% until 2028, asserting the necessity to control rice prices.
Rice inflation decreased to 0.8% in December from 5.1% in November and 19.6% a year earlier. Rice typically accounts for the largest share of overall inflation.
Global crude oil prices are projected to decline further, according to the BSP.
“Futures prices have diminished due to market anticipations of increased US oil production and expectations of reduced global demand, along with the likelihood of global oversupply.”
“This has consequently led to a postponed expected rise in oil production by the Organization of the Petroleum Exporting Countries and other allied nations (OPEC+).”
Nonetheless, the central bank cautioned that inflation may breach the 2-4% range if Dubai crude oil prices average over $90 per barrel from this year through 2026.
The Development Budget Coordination Committee forecasts Dubai crude oil to fall between $60 to $80 per barrel from 2025 to 2026.
“These oil price projections consider only direct impacts and do not factor in potential second-round effects on transport fares, food costs, and wage increases.”
The surveyed analysts also pointed out upward risks to the inflation outlook including supply disruptions caused by geopolitical tensions and unfavorable weather conditions.
“The anticipated increase in electricity rates, unexpected wage adjustments, and protectionist US trade policies were also noted as potential upward risks,” it mentioned.
The BSP additionally indicated the likelihood of rising electricity costs in the near future.
“In July 2023, the Supreme Court invalidated the previous cap on Wholesale Electricity Spot Market (WESM) prices for November and December 2013. Electricity rates could increase due to potential rises in generation charges being transferred to consumers.”
The central bank previously warned that the risks to the inflation outlook remain skewed towards the upside for this year and the following year.
The BSP anticipates inflation to settle at the midpoint of the 2-4% target until the first half of 2025, subsequently rising to the upper limit of the target from the second half of 2025 to the first half of 2026.
Inflation is expected to ease closer to the midpoint of the target by the latter half of 2026, propelled by falling global commodity prices, it noted.
FURTHER EASING
In the meantime, analysts surveyed by the BSP also foresee additional monetary policy easing for this year.
“For 2025, the prevailing opinion is that the BSP will relax its monetary stance by a range of 50-100 basis points (bps). Meanwhile, analysts have varied insights concerning the target reverse repurchase (RRP) rate for 2026,” stated the BSP.
Last year, the Monetary Board reduced rates cumulatively by 75 bps, lowering the key rate to 5.75% by the end of 2024.
“Overall, there is potential for measured monetary policy easing given the inflation remains within target, manageable underlying price pressures, and well-anchored inflation expectations. Nonetheless, upward risks to inflation require close surveillance,” according to the BSP.
“A further decrease in the policy rate will aid in enhancing the effects of prior monetary easing on market interest rates, lending activities, and aggregate demand.”
BSP Governor Eli M. Remolona, Jr. has noted that there is room for further easing as the current policy rate remains in “restrictive territory.” However, the central bank is likely to implement further rate reductions in “incremental steps.”
‘BELOW POTENTIAL’
Meanwhile, the BSP believes the Philippine economy will “grow below potential” in the short term due to subdued demand. The government aims for a growth target of 6-8% for 2025 to 2026.
“The projections for domestic growth indicate a more tempered pace of economic activity up to 2026,” it stated.
The BSP expected economic growth in 2024 to fall slightly shy of the government’s target of 6-6.5%, following a weaker-than-anticipated third-quarter gross domestic product (GDP) report.
Data for the fourth-quarter and full-year GDP will be published today (Jan. 30).
“Nevertheless, GDP growth is projected to see a modest increase and settle near the lower end of the targets for 2025 and 2026,” stated the BSP.
“The drop in global oil prices, the easing of the BSP’s monetary policy, and the cut in the reserve requirement ratio are expected to bolster domestic economic activity.”
Domestic demand is also expected to “remain steady though subdued.” — Luisa Maria Jacinta C. Jocson
