Inflation seen below 4% until 2021

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Metro Manila (CNN Philippines, July 19) — The Bangko Sentral ng Pilipinas (BSP) has grown more confident that there will be no more of the price spikes Filipino consumers had to contend with last year, saying that inflation will likely remain soft for the rest of 2019.

“Our inflation forecast has been revised downwards and we’re looking at an increasingly favorable inflation outlook for 2019 and 2020,” Dennis Lapid, officer-in-charge of the BSP’s Monetary Policy Sub-Sector, said during a press briefing on Friday.

“Inflation expectations have started to moderate. We’re seeing inflation expectations well-behaved and increasingly converging towards the midpoint of the 2-4 percent target,” he added.

Inflation averaged 3 percent from April-June, slipping from 3.9 percent in the first quarter. June inflation also hit 2.7 percent, the lowest in almost two years as most food, fuel, and utility costs continued to drop. Inflation averaged 3.4 percent so far this year, right in the middle of the BSP target range.

BSP Governor Benjamin Diokno also said in a statement that world crude prices are seen to keep declining, owing to softer global demand for oil and the escalating trade tensions between the United States and China which also weakens energy consumption.

The receding inflation likewise allowed the central bank to start unwinding last year's interest rate hikes and kick off a 2 percent reduction of banks' reserve requirement last May. The central bank chief said another interest rate cut is in the offing, to be followed by lower bank reserves.

A BSP survey among bank economists in June confirmed these findings, with all 27 covered by the poll saying that inflation will surely settle below 4 percent this year. The forecasts resulted to a mean of 2.9 percent, a marked easing from 5.2 percent in 2018.

Only one analyst gave an above-target projection for 2020, with the full-year average settling at 3.2 percent. By 2021, economists are penciling in a 3.1 percent rate, according to the central bank’s second quarter inflation report.

Last year’s inflation was mainly food-led, the Philippine Statistics Authority said, as short rice supply drove up prices of the staple. A new law removing limits on rice importations took effect in March, which the Department of Finance said has helped reduce the crop’s price by as much as ₱10 per kilogram.