High global inflation weighs on manufacturing sector

The Philippines’ manufacturing sector is seen to take a hit from high global inflation wrought by the prolonged Russian invasion of Ukraine, although nickel producers in the country stand to gain, economic think tanks said.

“Domestic demand continued to buoy factory activity, but rising inputs and fuel prices may weigh on the manufacturing sector,” the World Bank’s Philippine office said in a report over the weekend.

The World Bank noted that the purchasing managers’ index (PMI) eased to 53.8 in June from 54.1 on May, indicating slower overall manufacturing growth.

“Firms in the Philippines faced strong domestic demand, although demand from overseas is tempered. In the Philippines, and the rest of the region, rising fuel prices and inflationary pressures weighed heavily on outlook,” the World Bank said.

S&P Global Market Intelligence, which releases the monthly PMI report, earlier pointed to higher costs of inputs due to expensive oil and supply chain disruptions, which would eventually redound to higher consumer prices.

The World Bank noted that “high global oil and commodity prices and the weaker peso continued to push domestic inflation up,” adding that “the approved minimum wage hikes across 14 regions took effect in June further placed upward pressure on inflation.”

Looming Fed hike

Following the 6.1-percent jump in June, the rate of increase in prices of basic commodities during the first half of this year averaged 4.4 percent, above the Bangko Sentral ng Pilipinas’ (BSP) 2 to 4 percent target range of manageable price hikes conducive to economic growth.

On top of elevated headline inflation being addressed by the BSP’s string of interest rate hikes, the World Bank said that “fear of a weakening global outlook and more US Federal Reserve rate increases dampened investor sentiments, leading to a contraction in the local stock market index and further depreciation of the peso.”

With another supersized Fed hike looming, and to arrest the peso’s slide to over 16-year lows at 55-56:$1, the BSP last week increased its policy rate for bank loans by a surprise 75 basis points (bps) to 3.25 percent.

Costly commodities worldwide, while bloating the import bill of the Philippines, which sources the bulk of consumer goods abroad, would nonetheless give the local mining sector a windfall, the regional surveillance organization Asean+3 Macroeconomic Research Office said. Asean+3 groups the 10 Southeast Asian countries plus China and Hong Kong, Japan, as well South Korea. INQ