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Economists to government: Don't blame us for inflation.

LOCAL economists have dismissed the results of the study released by the Department of Finance (DOF) that the 'off-the-mark' forecasts of over a dozen analysts actually served to fuel inflation in the past few months, saying it was not right for the government to point fingers at this time.

Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang, who had the least margin of error on his inflation forecasts based on the DOF's study, said the only reason he could think of for why the DOF released such a scathing statement was 'frustration that think tanks can do better forecasts than the government.'

Based on the DOF's study, Ang's inflation forecast was, on average, 0.16 percentage points off the mark when its comes to inflation forecasts. This translates to a margin of error of 6 percent.

'The message is, regardless if we are asked or not, we will do the forecasts. It's our contribution, our value added as a think tank and research unit,' Ang told BusinessMirror on Monday.

In terms of GDP, the DOF said Ang's forecast was 0.26 percentage points away from the actual on average. This translates to a margin of error of 7.4 percent.

Further, Ang said, it is also not healthy to always be correct when making forecasts since it may indicate that an economist knows or has a hand in manipulating the data.

In statistics, forecasts with margins of error (MOE) above 10 percent are considered weak estimates, the DOF had explained in releasing the results of the analysis done by its Strategy, Economics and Results Group (SERG) on the inflation forecasts of several economists and analysts from 13 prominent institutions from January to November this year.

'The 13 analysts included in the SERG study are from prominent institutions which publicly announce their forecasts in major leading newspapers. However, some of the forecasts swung so much that some of the calculations we did yielded an MOE of between 11 and 14.9 percent,' Undersecretary Karl Kendrick T. Chua had said.

He said the DOF recognizes that rising inflation, especially in the third quarter, was mostly driven by food supply issues, the peso depreciation, growing consumer demand and higher oil prices in the global market. However, inaccurate forecasts, such as these, may have pushed up inflation expectations as well, ultimately contributing to higher prices for

Filipino families.

'We did the assessment to see how well analysts are in forecasting inflation and the results show how far off some of them were in their projections. We think that these forecasts have also driven inflation expectations that, as we know from global experience, have a tendency to become self-fulfilling prophecies,' he added.

Not meant to be conclusive

Another economist singled out by the DOF study was University of Asia and the Pacific School of Economics Dean Cid Terosa. He said 'forecasts are never meant to be conclusive' and merely serve as a guide to the public.

'At best, forecasts serve as guides to possibilities and not as indicators of finalities. They help people make decisions on their own. Forecasts aren't meant to take away everyone's right to accept or not accept them,' Terosa told the BusinessMirror.

However, Terosa said he still welcomed the study with good cheer since it may indicate that he was already 'famous' given that his margin of error was lower than 10 percent. He said this will not discourage him from giving his insights to interested parties.

Based on the DOF study, Terosa's GDP estimates were 0.29 percentage point away from the actual numbers on average. This translated to a margin of error of 8.7 percent.

'Well, if somebody needs my forecast, I'll be glad to give it. I don't force others to get my forecast. I'm happy that DOF singled me out, and that the margin of error was below 10 percent,' Terosa said.

Credible alternative

Meanwhile, Unionbank Bank Chief Economist Ruben Asuncion said all institutions and agencies such as the DOF are entitled to their own opinion. He said this is something that he will use as a motivation to make better forecasts.

Asuncion said the study released by the DOF certainly does not discourage him from making estimates. Based on the DOF study, Asuncion's inflation forecasts were 0.24 percentage points away from the actual numbers or a margin of error of 9.4 percent.

The DOF study also said Asuncion's GDP forecasts were 0.36 percentage points away from the actual figure on average. This translated to a margin of error of 10.9 percent.

'It strengthens the resolve that the private-sector forecasters need to be the credible alternative moving forward. Tools and processes should be improved,' Asuncion told the BusinessMirror.

Other economists took to social media to vent or share their opinions on the DOF study. This included Ateneo de Manila University School of Social Science Dean Fernando T. Aldaba, Bank of the Philippine Islands (BPI) lead economist Emilio S. Neri Jr. and Abacus/MyTrade Head of Research Nicky Franco.

Aldaba cried foul over the DOF statement as early as Sunday night and followed up his Tweet with another comment early Monday morning saying the government only wanted to pass the blame for the high inflation.

'It's not fair to blame forecasters for inflation expectations when your agency itself was not able to forecast correctly,' Aldaba said on Twitter on Sunday night.

'Very sad: passing the blame to others and not accepting that your own forecast was erroneous,' Aldaba followed up on Twitter on Monday morning.

'Toughest year'

For his part, Neri said on Sunday night that he was not sure if he will submit his forecast the next time economic polls are conducted even if he nor his institution was not singled out in the DOF study.

However, Neri said in his 20-year career, he found 2018 to be the 'toughest' year in forecasting monthly and annual inflation rates.

On Monday morning, he chided the DOF and said 'And I thought Phivolcs [Philippine Institute of Volcanology and Seismology] was the only fault-finding agency in the govt [government].' Franco, meanwhile, responded with screenshots of his own comparison of DOF inflation forecasts versus actual data from the Philippine Statistics Authority (PSA) on his Twitter account this morning.

He said based on his comparisons, private analysts and the DOF only reached a consensus in 4 out of 12 months. It also showed that in eight of the 12 months where the DOF and private analysts differed in their forecasts, the DOF was farther in 7 out of 8 months.

'If we're talking about accuracy, private analysts' forecasts had an average absolute variance [does not matter if difference against actual is - or +] of 0.23 percent from actual inflation data versus 0.31 percent for the DOF. That's a wide disparity of more than 32

percent,' Franco said.

Based on the DOF statement, the study analyzed the forecasts of economists representing eight institutions with six or less data points and some of them even performed better, with one averaging a deviation of 0.15 percentage points.

The 13 institutions and their analysts covered by the SERG study on inflation forecasts were: Ang of the Ateneo de Manila University; Angelo Taningco of Security Bank; Michael Ricafort of the Rizal Commercial Banking Corp.; Euben Paracuelles of BDO-Nomura; Victor Abola and Terosa of the University of Asia and the Pacific; and Asuncion of Union Bank.

The list also included Nicholas Mapa and Joey Cuyengkeng of ING; Shashank Mendiratta, Eugenia Victorino, Jennifer Kusuma and Betty Rui Wang of ANZ; Emmanuel Leyco of the Asian Institute of Management; Mitzie Conchada of De La Salle University; Guian Dumalagan of Land Bank of the Philippines; Ildemarc Bautista of Metrobank; and Emmanuel Lopez of the University of Santo Tomas.
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Publication:Business Mirror (Makati City, Philippines)
Date:Dec 18, 2018
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