Inflation predicted to peak during Typhoon Season says Chief Banking Economist

MANILA – Chief banking economist projects the country’s inflation rate to accelerate in the coming months due to weather-related factors. 

In a separate ING Bank Manila economist report, they state that a likely 6.9 percent unemployment rate “to weigh on the Philippine economic recovery."

“In view of the typhoon season and still relatively lower base/denominator effects, inflation could mathematically reach a peak of about 5 percent by September or October 2021."

"This will be before easing thereafter back to 3-4 percent by November-December 2021 as the lower base/denominator effects fade by then,” Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said in a report Tuesday.  

RCBC chief economist Michael Ricafort (left) and ING Bank Manila senior economist Nicholas Mapa

Ricafort also forecasts inflation to average “at a little over 3 percent” in 2022 “as the inflation denominator/base normalizes.”

The country’s inflation rate accelerated to its fastest since January 2019 last August to 4.9 percent. 

The average inflation in January to August stood at 4.4 percent, higher than the government’s 2 percent to 4-percent target band. 

Monetary authorities forecast a sustained elevated inflation rate in the next few months before this decelerates to a within-target level by the end of the year. 

Ricafort forecasts the Bangko Sentral ng Pilipinas (BSP) to keep its accommodative stance “as part of the efforts to help stimulate and support recovery prospects in the economy” given the domestic growth, along with demand and consumption, still fragile because of the pandemic.

While Ricafort sees the BSP’s overnight reverse repurchase (RRP) rate to remain at a record-low 2 percent, he projects a possible cut in banks’ reserve requirement ratio (RRR) “especially if inflation stabilizes further.” 

6.9 percent unemployment

In a separate report, ING Bank Manila senior economist Nicholas Mapa also forecasts monetary officials to “likely look past this price spike” since BSP Governor Benjamin Diokno has repeatedly vowed to keep their current stance to support the domestic economy.

“A BSP rate hike will not likely be able to address the current food price spike nor make imported energy cheaper and thus, we fully expect BSP to retain its accommodative stance all the more with the economy still in the midst of a recession,” he said.

Mapa also forecasts the elevated inflation rate and the 6.9 percent unemployment rate “to weigh on the Philippine economic recovery.” 

He expects full-year gross domestic product (GDP) to be at around 3.8 percent, lower than economic managers’ 4 percent to 5 percent assumption.

He also forecasts the peso to “remain pressured in the near term as BSP signals it will not likely adjust policy rates to combat this current spike in prices.” (PNA)

Note: In 2020, there were seven tropical storms recorded in the Philippines.

(File photo)

Super Typhoon Goni, became the world's most powerful tropical cyclone in November that year, bringing torrential rains, violent winds, mudslides, and storm surges to Luzon.

In all, the typhoon killed at least 32 people, and caused at least ₱20 billion (US$415 million) worth of damage.