IHS Markit: PH manufacturing growth further slowed in July amid high inflation

Manufacturing growth in July fell to a five-month low partly as high inflation impacted on domestic demand, the latest Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) released Wednesday showed.

The seasonally adjusted PMI declined to 50.9 last month from 52.9 in June, global research firm IHS Markit said in a report.

“The latest reading was the lowest for five months and represented only a marginal improvement in the health of the sector,” IHS Markit said.

A PMI score of above 50 nonetheless indicates an overall increase in manufacturing activity.

“Growth in both output and new orders slowed noticeably in July accompanied by a milder accumulation in input stocks. Firms were reluctant to add new workers and raised purchasing activity at a slower rate,” IHS Markit said.

“Meanwhile, inflationary pressure remained elevated while expectations of output in the year ahead dipped to a survey-record low,” IHS Markit added.

Separately, IHS Markit principal economist Bernard Aw noted that “new business grew at a much slower rate in July after a solid second quarter, despite a strong pick up in export sales.”

“Slowing demand presents a worrying development and raises questions whether the recovery from the rollout of new excise taxes at the start of this year is losing steam,” Aw said.

Aw was referring to the Tax Reform Acceleration and Inclusion (TRAIN) law or Republic Act No. 10963 signed by President Rodrigo Duterte last December, which since Jan. 1 this year, has jacked up or imposed new excise taxes on consumption of cigarettes, sugary drinks, oil products and vehicles, among other goods, to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of P250,000.

“One area where the TRAIN law is still felt strongly is prices. However, external factors are also driving inflation. Survey evidence pointed to higher oil prices and a weaker peso,” Aw explained.

Inflation hit an over five-year high of 5.2 percent in June and averaged 4.3 percent during the first half, already beyond the government’s full-year target range of 2-4 percent.

Also, “input cost inflation remained marked in the manufacturing sector during July which, in turn, led to further increases in selling prices,” Aw added. “Although charges were raised at a notable pace, the rate of increase remained far weaker than that of costs, suggesting pressure on profit margins.”   /muf