Perceived elevated prices and wages, also called inflation expectations, persisted in the first three months and has even pushed closer to the top end of the anticipated range by the Bangko Sentral ng Pilipinas (BSP) for the period.
The BSP said inflation expectations have not waned because of the perceived weakness of the local currency, as well as the rising price of oil the rest of the year.
A recent survey of 30 private bank economists nationwide conducted by the BSP in the first quarter showed an elevated mean inflation forecast for both 2017 and 2018, compared to forecasts done in the final quarter last year.
In particular, analysts and economists forecast inflation this year ramping up to 3.4 percent, from only 3 percent when projected last December. The outlook for 2018 also consequently rose from 3.1 percent originally to 3.5 percent.
The analysts attributed higher inflation expectations to a weaker peso, persistently high global oil prices, the pursuit of tax reform, the rise in electricity rates due to higher oil prices and maintenance shutdowns of some power plants, as well as higher government spending on infrastructure.
The BSP also said economists worry over possible El Niño in the coming months, as well as transport-fare adjustment as a result of higher oil prices.
Forecast inflation could have been higher, however, if not for so-called downside risks attributed to a possible return to low global oil prices, the slowdown of the Chinese economy, a yuan devaluation, as well as the likelihood of recession and deflation in Japan and the euro zone.
The central bank has targeted inflation ranging from 2 percent to 4 percent for the year. Last year inflation proved lower than the bottom forecast when it fell to 1.8 percent instead. This year inflation averaged 3.2 percent in the first three months.
Broken down, the survey of 23 bank economists showed an 88.6-percent change that inflation for 2017 should range within the BSP’s 2- to 4-percent target range.
For 2018, the respondents assigned an 84.9-percent probability that inflation will fall within the 2- to 4-percent target range set for next year.
The results of the first-quarter private economists survey mirrors the view of the majority of businesses in the country expecting inflation to increase.
This was, however, in contrast to moderating inflation expected by the policy-making Monetary Board of the BSP.
At their latest monetary policy meeting, the BSP revised forecast inflation averaging only 3.4 percent this year, down from February forecast of 3.5 percent.
The forecast for 2018 was also revised from 3.1 percent to 3 percent.
The BSP said the balance of risks influencing the inflation outlook remains tilted to the upside. The upside factors include the transitory impact of the proposed tax-reform program, as well as possible adjustments in transportation fares and electricity rates. The Monetary Board also noted the “beneficial effects” on inflation of the removal of quantitative restrictions on rice importation.