The data-dependent, inflation-targeting Bangko Sentral ng Pilipinas (BSP) will further improve its statistics using technology and the most advanced analytics for a more accurate data and forecasting methods.

“Our plans are only as good as the information upon which they are based. As such, the BSP continues to improve our statistics, in part, by adhering to international standards, including best statistical practices. We are leveraging advancements in technology and analytics to develop better and better economic indicators,” he said Friday, Oct. 27, in an event commemorating the 34th National Statistics Month.

The BSP is an active member of the country’s statistical system which makes it “a producer of economic and financial data.”

“We underscore the importance of accurate, timely, and relevant statistics. These are essential in fostering our economy’s growth and our resilience against shocks,” said Remolona.  

The BSP prides itself as having a credible and accurate forecasting methods. It has noted always that its ability to forecast inflation is more than adequate, and that its forecasting performance are generally “accurate, unbiased and efficient” during the last 12 years, and even outperforming forecasts from the private sector.

In an evaluation report of its forecasting actions for the period 2010 to 2022, the BSP considers both its monthly and annual inflation forecasting performance as better than most, including that of the International Monetary Fund (IMF) and private sector economists.

“The tests indicate that the inflation forecasts produced by the BSP are generally accurate, unbiased, and efficient for the period 2010 to 2022. However, testing for a smaller sample size showed that the BSP’s inflation forecasts were systematically lower than actual outturns reflecting the significant uncertainty in global oil and food prices as well as the smaller impact of non-monetary measures that were assumed in the baseline forecasts. Nonetheless, the BSP’s forecasts performed better compared to the private sector and IMF across the different forecast horizons,” said the BSP in a Monetary Policy Report.

For the month-ahead inflation forecast for example, from 2010 to 2022 the BSP correctly predicted that actual inflation will settle within the forecast range 143 times out of 155 months, or a batting average of 92.3 percent.

The report also noted that 11 out of 11 month-ahead inflation forecasts in 2022 were within the forecast range announced by the BSP, which is usually the last working day of a given month.

Meanwhile, forecasting errors or the mean absolute error (MAE) from the month-ahead forecasts in 2022 were lower compared to the historical average.

Last year, the BSP said the MAE of the median and average inflation forecasts for the BSP was 0.17 percentage point (ppt) compared to Bloomberg’s 0.20 ppt.

The BSP’s month-ahead forecast errors had a 0.20 ppt historical average since 2010. “The BSP’s month-ahead inflation forecasts (in 2022) outperformed the private sector’s consensus estimates,” it said.

The BSP also noted that the MAE of its one-month ahead inflation forecasts “has consistently declined since 2010, although it has risen to levels above the historical average in the years 2018, 2020, and 2021.”

As for the BSP’s annual inflation forecasts, in 2022 the forecasts were lower compared to the actual average. The annual inflation estimates are released eight times to the public after each Monetary Board policy meeting in a given year.

To improve its forecasting performance, the BSP since last year has intensified efforts to acquire real-time information for it to identify emerging risks across different sectors.

They developed and continue to develop new tools such as machine learning methods to analyze non-traditional data such as internet searches, newspaper articles, and social media posts, it said.

Meanwhile, to further enhance not only its forecasting models but also surveillance, simulations and policy analysis, the BSP has ongoing consultations with the IMF’s Institute for Capacity Development (IMF-ICD) and the Japan International Cooperation Agency.

At the moment, the BSP’s Department of Economic Research is transitioning to the Policy Analysis Model for the Philippines (PAMPh), in cooperation with the IMF-ICD.

PAMPh will allow the BSP to present a more detailed outlook of inflation and growth, as an enhanced workhorse model. The new model will be extensively tested before it is used publicly.

Currently, the BSP forecasts inflation using the Multi-Equation Model (MEM) but an improved PAMPh will complement MEM.