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Economists improve their inflation forecast for 2023

Since basic goods, energy, and transportation costs continue to climb due to the continuation of the upward trend in oil prices, economic managers have altered the government’s inflation assumption for this year.

Amenah Pangandaman, the head of the interagency Development Budget Coordination Committee (DBCC) and the secretary for budget and management, stated in a briefing on Monday that the most recent inflation assumption for this year has been increased to a range of 5 to 7 percent from 2.5 to 4.5 percent.

Nevertheless, she continued, “The government is committed to pursuing an all-of-government approach to continuously implement immediate and medium-term strategies to alleviate inflation, ensure food and energy security, and return to the target range of 2-4 percent between 2024 and 2028. This commitment is made through the Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO).

In March of last year, the country’s pace of price increases dropped down for the third consecutive month to 7.6% from 8.6% the month before and the 14-year high of 8.7% in January.

Average inflation in the first quarter of this year was 8.3%, significantly higher than the government’s goal range of 2 to 4 percent until 2024.

The average inflation rate for this year is predicted to be 6% by the monetary authorities, who also expect inflation to revert to within-target levels in the last quarter of this year.

According to Pangandaman, the DBCC cut its estimate for Dubai crude oil for this year from USD80-USD100 per barrel to USD70-USD90 per barrel in response to the most recent drop in oil prices on the global market.

“The latest forecasts suggest that global crude oil prices will continue to decline in 2024 before stabilizing at USD60-80 per barrel between 2025 and 2028 as the latest forecasts suggest falling global crude oil prices over the medium term,” she added.

According to Pangandaman, the assumption for the exchange rate between the US dollar and the Philippine peso this year was revised from 55 to 59 to 53 to 57, and this range is “expected to be maintained at the same level until 2028.”

“This positive outturn is attributed to the BSP’s policy normalization measures, as well as expected inflows from improvements in tourism revenues and OFW (overseas Filipino workers) remittances due to the reopening of the country’s economy,” the official added.

The estimate for service exports for this year and the following year was also altered, “following the recovery of the tourism sector and the continued resilience of the BPO (business process outsourcing) sector.”

The most recent statistics went up from 12 and 6 percent to 17 and 16 percent for this year and next, respectively.

According to Pangandaman, forecasts for the growth of services imports also increased from 8% to 11% for 2023 and from 8% to 10% for 2024.

“The trade assumptions reflect the gradual normalization of economic activity both globally and domestically,” she continued.

In the short to medium term, revenues are anticipated to increase “as proposed tax revenue measures under the MTFF (Medium-Term Fiscal Framework) such as the Package 4 or the Passive Income and Financial Intermediary Taxation Act, VAT on digital service providers, and excise taxes on single-use plastics and pre-mixed alcohol are expected to be implemented started 2024.”

The medium-term revenue forecast is expected to increase from PHP3.73 trillion this year to PHP6.62 trillion in 2028.

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