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  • Writer's pictureZiggurat Realestatecorp

Inflation will be a concern for new president

Inflation management should be a top economic priority for the next president of the Philippines, as rising consumer prices may prompt the Bangko Sentral ng Pilipinas (BSP) to raise interest rates as early as next month, according to Moody’s Analytics.

Sonia Zhu, associate economist at Moody’s Analytics, said in a commentary that the incoming president would need to treat inflation as a top economic priority.

“Inflation management has become a key policy point. Since early 2022, household discretionary income has come under threat from higher prices for staples,” she said.

In a commentary titled “Inflation Will Be a Headache for the New Philippine President,” Zhu said Russia’s invasion of Ukraine and Chinese COVID lockdowns worsened supply-chain disruptions and brought inflation into the spotlight.

Latest data showed inflation quickened to 4.9 percent in April, the highest in more than three years from four percent in March. This exceeded the BSP’s two to four percent target range.

The research arm of the Moody’s Group said inflation also exceeded BSP’s two to four percent in the early years of Duterte’s presidency.

Inflation surged to 5.2 percent in 2018 due to climbing food and non-alcoholic beverage prices. The high food inflation dampened real gross domestic product (GDP) growth in 2018 as households cut spending after the BSP hiked rates aggressively by 175 basis points to 4.75 percent.

“Even so, inflation didn’t significantly cool until 2019,” Zhu said.

According to Zhu, the BSP has to do the heavy lifting anew to soothe inflation.

BSP Governor Benjamin Diokno earlier said the central bank is likely to keep interest at record lows on May 19 as it looks into the first quarter GDP outturn before making a move on June 23.

“The BSP governor said the central bank will monitor March-quarter GDP figures to get a better handle on the extent of the economic recovery. A first-quarter GDP growth reading above six percent year-on-year will increase the odds of a rate hike in June to 60 percent,” Zhu said.

Moody’s Analytics said polls show that presidential aspirant Ferdinand “Bongbong” Marcos Jr. is likely to become the new president of the Philippines as Vice President Leni Robredo trails far behind.

“Both Marcos and Robredo have floated fiscal support, with Marcos flagging the idea of a fuel subsidy and Robredo suggesting targeted social aid for the poor. The prolonged pandemic has widened income disparity in the Philippines and increased unemployment,” Zhu said.

According to Zhu, the jobless rate was sitting around five percent prior to the COVID pandemic, but climbed to around seven to eight percent.

Latest government statistics released in late 2021 showed around 26 million Filipinos of close to 24 percent of the population could not meet their basic food and nonfood needs.

“In an effort to address poverty, Robredo has also promoted a job scheme and housing program. Marcos has suggested the government step up investment in agriculture as a way to create jobs,” the economist said.

Moody’s Analytics said that the Philippines might not have the financial capacity to provide such fiscal cushioning as heavy borrowing to fund pandemic stimulus packages took the country’s debt-to-GDP ratio beyond 60 percent in 2021 from 54.6 percent in 2020.

“The limited fiscal room has the new administration’s hands tied when it comes to navigating price hikes,” Zhu said.

Source: Philstar

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