DESPITE expectations that inflation will peak in September or October, the Philippine economy’s growth will remain robust in the last quarter of the year on the back of strong consumer spending, according to a local think tank.
In its latest Market Call report, First Metro Investment Corporation-University of Asia and the Pacific (FMIC-UA&P) Capital Market Research said inflation is expected to peak at 6.7 percent either in September or October this year.
However, the depreciation of the peso and holiday spending could boost consumption and allow the economy to post a growth of 6.5 percent in the last quarter of the year.
“While inflation above 6 percent may cut into consumer spending, the significant peso depreciation puts more money in the hands of OFW families, BPO workers, and exports and their suppliers,” FMIC-UA&P Capital Market Research said.
“This should blunt most of the negative impact of inflation and enable the economy to expand by 6.5 percent in the fourth quarter of 2022. Peak inflation may be at 6.7 percent by September or October this year,” it added.
The think tank said the sharp surge of oil prices observed in the first semester of the year “have not completely played out.”
This is compounded by high food inflation in advanced countries due to droughts and supply issues.
The Philippines is a net food importer which means it imports more food than it produces. The country’s food staple, rice, is also being imported mainly from its Southeast Asian neighbors.
With high inflation, FMIC-UA&P Capital Market Research said while there is no need for the Bangko Sentral ng Pilipinas (BSP) to match the rate hikes of the US Federal Reserve, the peso could further depreciate if it falls behind the curve.
Last week, the Asian Development Bank (ADB) said it expected Central Banks in the region to continue tightening monetary policy in order to combat “broadening price pressures” as core inflation has been rising.
“The BSP raised policy rates by 50 bps in its September 22 meeting after the Fed aggressively boosted their rates by 75 bps given that US August inflation rebounded,” FMIC-UA&P Capital Market Research noted.
“August inflation rebounded. Although there is no need for BSP to match the Fed hikes 1-for-1 due to the much higher inflation in the US, the peso-dollar rate will take a further hit should BSP lag too much behind the Fed’s moves,” it added.
In terms of the peso, the inflow of OFW remittances in November and December may prevent further depreciation. Nonetheless, the exchange rate will remain volatile.
FMIC-UA&P Capital Market Research said the movement of the exchange rate would largely depend on US inflation and the actions of the Federal Reserve.
Reports earlier indicated that a forecast released by the US Federal Reserve showed inflation would not return to its 2 percent target until 2025. The Fed said it expects to continue raising interest rates to cool inflation.
To date, the latest inflation print in the US is at 8.3 percent in August, a tad slower than the 8.5 percent reported in July. On Thursday, the interest rates were raised again by another 75 bps.
“Actual USD-PHP rates landed way above the 30-day moving average (MA) and the 200-day MA suggesting that the local currency’s fragility will stay. However, we expect a seasonal rebound by November as OFW remittances rush into the economy,” the think tank said.
Last week, the National Economic and Development Authority (Neda) said inflation could be controlled by 2024. Socioeconomic Planning Secretary Arsenio M. Balisacan said inflation is one of the uncertainties faced by the country in terms of attaining upper middle-income country (UMIC) status by 2024.
In a separate in-person briefing in Manila on Friday, Neda Undersecretary for Policy and Planning Rosemarie G. Edillon, for her part, said Balisacan was merely referring to the targets of the government and that efforts are underway to combat inflation.
Edillon said while the 2024 target is for inflation to average 2 to 4 percent, the inflation for 2023 is already seen to come closer to given expectations that external price pressures such as oil prices are on the decline (Story: https://businessmirror.com.ph/2022/09/23/inflation-induced-price-hike-of-some-commodities-may-prevail-until-2024/).