A significant drop in international oil prices as well as the efforts of the Philippine government to beef up domestic food supplies may be reining in inflation in the country with greater impact than previously expected, according to Goldman Sachs.
The economic research team at the United States-based financial services giant said in a commentary they have lowered their forecast for inflation in the Philippines for full-year 2023 to 5 percent from 5.2 percent.
This was higher than the Bloomberg consensus forecast of 4.5 percent, which agrees with the Bangko Sentral ng Pilipinas’ (BSP) own latest forecast.
Still, Goldman Sachs’ revised prediction is lower than the mean forecast of 5.1 percent from analysts that the BSP surveyed.
The American firm similarly lowered inflation forecasts for 2023 across most other economies in Southeast Asia, mainly on account of downward adjustments in global energy forecasts.
“We think that headline inflation has likely already peaked in all [Southeast Asian] countries except Singapore given the GST (goods and services tax) hike on Jan. 1,” Goldman Sachs said.
It added that headline inflation should decline significantly over the course of this year.
Still, forecasts point to higher levels compared with the Philippine government’s target of keeping average inflation in a given year within the range of 2 to 4 percent.
Food prices to moderate
The lowered forecast for the Philippines “reflects the global energy price forecast cuts, as well as a modest downward adjustment to our food inflation momentum forecasts given a ramp-up in government intervention efforts to cap food price increases via measures such as higher imports of key food commodities,” Goldman Sachs added.
On Dec. 29, 2022, President Marcos approved the extension of an executive order that temporarily reduces import duty rates of key food commodities as well as coal, which is used for the production of electricity.
Executive Order (EO) No. 171 extends by one year the validity of EO No. 10, which reduced the Most Favored Nation tariff rates for key commodities such as pork, corn, rice and coal until Dec. 31, 2022.
Lower fuel tariffs
Also, lower tariff rates for coal may be extended beyond Dec. 31, 2023, subject to review every semester.
Finance Secretary Benjamin Diokno said this move was aimed at protecting consumers by keeping prices affordable to ensure food security, augmenting the local supply of basic agricultural commodities, reducing the cost of electricity, and diversifying the country’s market sources.
Meanwhile, the International Energy Agency (IEA) said in their Oil Market Report issued in December that a weak macroeconomic environment and ample supply have knocked around $15 per barrel off benchmark crude prices over the previous month.
“While lower oil prices come as a welcome relief to consumers faced by surging inflation, the full impact of embargoes on Russian crude and product supplies remains to be seen,” the France-based agency said.
“As we move through the winter months and toward a tighter oil balance in the second quarter of 2023, another price rally cannot be ruled out,” the IEA added. INQ