UK think tank: Oil price spike to hike PH inflation, widen trade deficit

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MANILA, Philippines—The Philippines is among emerging markets seen by UK-based think tank Oxford Economics to suffer most from expensive oil.

“Higher fuel import prices will translate into elevated inflation in Asian and European emerging markets where subsidies are low. Inflation via this channel will be most apparent in the Philippines, Thailand, Poland, India, Hungary, and Romania,” Oxford Economics head of global strategy and emerging market research Gabriel Sterne and emerging market economist Lucila Bonilla said in a report. The Philippines is a net oil importer.

Mainly on the back of surging global prices spilling over locally, the Bangko Sentral ng Pilipinas (BSP) expects headline inflation to average 4.3 percent this year, above its 2 to 4 percent target range of manageable price hikes conducive to economic growth.

“Countries such as Thailand, the Philippines, Hungary, and Poland are the worst-placed when it comes to energy inflation and fiscal impact,” Oxford Economics said.

Oxford Economics noted that the Philippines will spend about 0.2 percent of gross domestic product (GDP) on subsidies to sectors most badly hit by costly fuel. The government will give away a total of P47.5 billion in financial assistance to the bottom 50-percent income households, public utility vehicle (PUV) drivers, and agricultural producers.

Excess collections from the 12-percent value-added tax (VAT) levied on oil products would partly finance these dole outs. At an estimated average global oil price of $110 per barrel in 2022, the government had projected to collect an additional P26 billion in VAT this year.

Also, Oxford Economics said that commodity importers like the Philippines, Hungary and Malaysia would be “hurt the most” in terms of wider trade-in-goods deficits as expensive oil and other products would bloat their import bills.

The latest Philippine Statistics Authority (PSA) data showed that the Philippines’ trade deficit last year widened by 75.7 percent to $43.2 billion from $24.6 billion in 2020.

Imports grew 31.3 percent to $117.8 billion in 2021, while merchandise exports increased by a slower 14.5 percent to $74.7 billion. Both imports and exports last year exceeded their pre-pandemic, 2019 levels.

As of end-February this year, the trade deficit widened by 47.6 percent to $8.2 billion as two-month imports growth of 24 percent to $20.5 billion exceeded the 11.9-percent rise in export sales to $12.2 billion.

The yawning trade and current account deficits partly wrought by expensive oil imports were seen further weakening the peso. But Bloomberg reported on Thursday that Finance Secretary Carlos Dominguez deemed the peso’s depreciation remaining within “manageable limits.”

TSB