High inflation taking toll on economic recovery

Private-sector economists watching the Philippines expect inflation to have stayed above 6 percent in August, with high consumer prices making a dent on the economy’s recovery from the pandemic-induced slump.

All 20 August headline inflation forecasts collected by the Inquirer last week stood at 6.1 percent or higher. The Philippine Statistics Authority’s (PSA) report on last month’s consumer price index (CPI) will be released on Tuesday, Sept. 6.

Nine projections were above the 45-month-high level of 6.4 percent last July. The highest August inflation estimate of 6.7 percent came from eManagement for Business and Marketing Services’ Jonathan Ravelas, and UnionBank of the Philippines’ Ruben Carlo Asuncion.

“The main factors are the elevated global oil prices and the rising domestic demand for goods and services as the economy continues to move away from the impact of the pandemic. Food and transport prices have continued to rise. We expect, nevertheless, inflation to peak in September and only to subside to slightly above 6 percent in December,” Asuncion said.

Weak consumption

“With the current environment of rising price levels, there seems to be no clear factor to think that household consumption will be better in the second half of 2022. Nevertheless, the level of current household demand is expected to continue to stabilize with the uninterrupted reopening of the economy and the resumption of face-to-face schooling recently,” Asuncion added.

Last week, the country’s chief economist, Socioeconomic Planning Secretary Arsenio Balisacan, said household consumption in the Philippines remained below prepandemic levels in the first half of this year due to elevated inflation. Following an above-target average gross domestic product growth of 7.8 percent in the first semester, second semester expansion was expected to slow amid lingering global inflation pressures spilling over locally.

Balisacan, who heads the National Economic and Development Authority, was nonetheless optimistic that the downscaled 6.5-7.5 percent economic growth target for 2022 would be achievable as the economy needed to grow by only at least 5.3 percent during the second half to hit the lower end of the full-year goal.

Economists’ expectations

The other economists who projected August’s inflation rate higher than July’s included Philippine National Bank’s Alvin Joseph Arogo, University of Asia and the Pacific’sVictor Abola, and University of the Philippines-Los Baños’ Agham Cuevas, who forecasted 6.6 percent; as well as ANZ’s Sanjay Mathur, DBS’ Han Teng Chua, Bank of the Philippine Islands’ Emilio Neri Jr., and United Overseas Bank’s Loke Siew Ting, who shared the same 6.5-percent projection.

Four economists expect a similar 6.4-percent rate of increase in prices of basic commodities last month like July’s, namely ING’s Nicholas Antonio Mapa, Moody’s Analytics’ Sonia Zhu, Security Bank’s Robert Dan Roces, and Sun Life Financial’s Patrick Ella.

Seven forecasts were below July’s print: 6.3 percent for China Bank’s Domini Velasquez and Rizal Commercial Banking Corp.’s Michael Ricafort; 6.2 percent for Nomura’s Euben Paracuelles and Regina Capital’s Luis Gerardo Limlingan; and 6.1 percent for Goldman Sachs Economics Research, Oxford Economics’ Makoto Tsuchiya, as well as Pantheon Macroeconomics’ Miguel Chanco.

For Abola, household consumption “may underperform due to higher inflation” even as it “will affect some 30 percent of the population, while around 70 percent such as families of overseas Filipino workers , business process outsourcing workers, exporters, and their suppliers will benefit from peso depreciation.” The peso slid to an all-time low of 56.77 against the US dollar last Friday. “Thus, the downside won’t be large,” Abola said. INQ