Inflation won’t hurt PH economy — Metrobank

MANILA, Philippines — Metrobank has expressed confidence inflation, although likely to accelerate further, will remain manageable and will not reach levels that could stall recovery.

In its latest research note, Metrobank said various emerging economies have already implemented measures to temper inflation in their jurisdictions. These measures are led by interest-rate hikes, which some economists feared could dampen consumer demand and drag overall economic growth.

It said that despite the increase in interest rates in many emerging markets, the move by the policymakers did not lead to substantial slowdown in the growth rates of economies.

Given this backdrop, accelerated increase in consumer prices as well as efforts to curb the increase, such as interest-rate hikes, could be very well absorbed by the Philippine economy. The bank said faster inflation would remain within tolerable levels and would not cause the economy to significantly slow down.

“… countries, especially emerging economies, that are facing headwinds of heightened price pressures, have already implemented measures to combat inflation without affecting their economic expansion,” Metrobank said in the research note authored by its research analyst, Pauline Revillas.

The bank said price pressures would continue to rise, especially with the growing demand in China, one of the Philippines’ major sources of imported goods.

“From where we are right now, the commodities boom still has a long way to go,” the bank said.

Nonetheless, the bank said the ability of the economy to absorb the effects of rising prices has already strengthened.

Metrobank also sees global economic recovery from the recent turmoil to be sustained, and so this should have positive influence on the ability of the Philippines to continue growing as well.

“… the recovery has already gained traction that the jabs from higher commodity prices would not really have a knock-out effect on the global economy,” the bank said.

So far this year, the Bangko Sentral ng Pilipinas has already raised its key policy rates twice. First increase was a 25-basis-point increase from 4 to 4.25 percent. The other was another 25-basis-point hike.

Government reports said inflation in the first four months averaged at 4.2 percent. In April alone, inflation stood at 4.5 percent.

Inflation so far this year has accelerated from the mere 3.8 percent registered in 2010.

The BSP raised its key policy rates, which influence commercial interest rates, saying keeping interest rates at record lows could cause inflation to eventually breach the full-year target.

The government has set a goal of limiting inflation for the full year between 3 and 5 percent.

Higher interest rates are expected to encourage people to save, thus tempering growth in demand for goods and services. Slower growth in demand, in turn, tempers inflation.