IMF hikes Phl inflation forecast to 2.4%

The International Monetary Fund (IMF) hiked its forecast for average inflation this year due to the impact of El Niño on food supply, but stressed the figure would remain within the government’s two to four percent target.

Chikahisa Sumi, head of the Article IV mission to the country, said yesterday the Fund has now adopted a 2.4-percent baseline forecast for inflation this year. This is higher than the 2.1 percent announced last month, but near the lower end of the government’s target band.

“There is the risk that the El Niño impact may be even larger depending on how severe El Niño is and how rapidly the government can react in allowing in additional food import,” Sumi said during a briefing after the annual Article IV mission.

The risks associated with El Niño stems from possible poor harvest and an increase in food prices, he said.

But he stressed “the Philippine authorities have undertaken preemptive measures and continue to be prepared to respond as needed with suitable policies should any of these risk scenarios materialize, given the Philippine economy’s strong fundamentals and ample policy space.”

The IMF conducts an annual check on its members to discern any weaknesses that could prompt financial and economic instability.

Yesterday, Sumi announced that the Fund’s 6.7-percent estimate for Philippine economic growth has been maintained as lower commodity prices are seen further driving private consumption and enhanced budget execution accelerates spending.

The projection is below the seven to eight percent target of the government but faster than the 6.1-percent expansion seen last year.

“The outlook for the Philippine economy remains favorable despite uneven and generally weaker global growth prospects,” Sumi said.

The IMF also kept its 6.3-percent growth forecast for Philippine economic growth next year.

“Risks to the outlook stem from both external and domestic sources. An upside risk is a stronger lift to demand from lower commodity prices,” Sumi said.

“On the downside, disruptive asset price shifts due to asynchronous monetary policies in advanced economies are a risk, but the Philippines’ strong fundamentals should provide the necessary cushion,” he added.

Apart from risk emanating from the effects of El Niño, Sumi said a quick rise in credit and construction may result in financial stability risk. A weak budget execution is also seen a drag to improvements in infrastructure.

“Despite strong growth and improvements in various areas over the last few years, the country has the potential to do even better and build a more inclusive society with reduced poverty, particularly in the context of ASEAN (Association of Southeast Asian Nations) economic integration,” Sumi said.

“This path to broad-based prosperity depends crucially on stepping up investment, including in infrastructure and its young people, thereby creating muchneeded employment opportunities for the fast-growing population,” he added.