MANILA, Philippines - New York-based think tank Global Source Partners sees Philippine inflation easing further this year and next year, giving monetary authorities enough space to cut interest rates to boost the economy.
In a report, former Finance undersecretary Romeo Bernardo and economist Margarita Gonzales said inflation would ease to 3.6 percent this year before climbing to about 4.5 percent next year.
“Inflation numbers will likely remain within target going forward, averaging about 3.6 percent in 2012 and 4.5 percent in 2013 in our estimate,” Bernardo and Gonzales said.
While oil prices have lately been escalating to well over $100 per barrel and may continue do so as geopolitical tensions heighten in the Middle East because of pressures placed on Iran over its nuclear program, Global Source said the weakening global demand would cushion the increases.
Likewise, the think tank added that the risk of crop failures could persist with the return of the La Niña weather phenomenon this year but world rice prices would likely trend down owing to global stocks being at their highest level since 2002 and 2003 and India’s reentry into the market after suspending its rice export ban.
Inflation rose to 4.8 percent in 2011 from 3.8 percent in 2010 due to a run-up in fuel and food costs early last year.
The Bangko Sentral ng Pilipinas (BSP) has set an inflation target of between three percent and five percent from 2011 to 2014.
Bernardo and Gonzales said inflation would likely be on a downtrend until the summer months of April and May, giving monetary authorities enough room to slash interest rates by another 25 basis points.
“Helped by base effects, the headline rate will likely be on a downtrend until the summer months of April and May. As growth remains shaky, we expect another 25 basis points cut to be made before that period ends,” they said.
Global Source believes that the rate cut was done “to help boost economic activity and support market confidence” as the country’s gross domestic product (GDP) growth eased to 3.7 percent last year from 7.6 percent in 2010 due to weak global trade and underspending by the Aquino administration. - By Lawrence Agcaoili