Bangko Sentral ng Pilipinas Governor Felipe Medalla expressed optimism Thursday that inflation may have peaked in December last year as he cited the easing of pricing pressures in the opening month of 2023.
Inflation hit 8.1 percent in December, up slightly from 8.0 percent in November and 7.7 percent in October, figures from the Philippine Statistics Office showed.
“I think the worst is over,” Medalla said, explaining that “supply shocks” in 2022 for such commodities as sugar and oil have also started to fade in the new year.
The price of onions, however, has remained high this month, prompting the Department of Agriculture headed by President Ferdinand Marcos Jr. to resort to importation to stabilize prices of as high as P700 per kilo from the P170/kilo at Kadiwa stores.
“We thought the last bad month would be October or November, but that didn’t happen. We had another shock (in December). Although the year-on-year (inflation rise) is quite high, the month-on-month (increase) is back to the normal 0.3 percent,” Medalla said.
To ease inflation brought about in part by the then-surging United States dollar, the BSP raised the key interest rate to 5.5 percent from 2.25 for the period.
‘Under control’
Medalla pointed out that the dollar was “not as strong as it used to be” and this, coupled with surging US inflation, has put “more under control” commodity pricing in the Philippines.
He explained that the interest rate differential between the US and the Philippines must be kept at the current level or investors would prefer US bonds instead of peso-denominated bonds.
“(With) all of these together, we are hoping that by the third quarter of this year, inflation will be below 4 percent,” the BSP official, adding that the inflation target for the year is between two and four percent.
The baseline forecast, on the other hand, for economic growth in 2023 is over six percent, Medalla revealed. He said the projected growth may be fueled by pent-up demand for goods and services being satiated this year by consumers.
The Asian Development Bank said the Philippine economy may have grown by 7.4 percent for the whole of 2022, although it said GDP growth for 2023 is expected to slow down to 6.0 percent.
“The Philippine economy has shown strong underlying growth momentum and resilience in 2022 and this is expected to continue in 2023, with GDP growth converging towards its longer-term growth rate of about 6 percent,” the ADB said.
On Wednesday, Secretary Benjamin Diokno of the Department of Finance told the 16th Asian Financial Forum Global Economic Outlook Plenary Session in Hong Kong that the Philippine government has adopted the correct policy tools in negating the effects of the pandemic on the economy.
“The growth and price stability objectives of any government can be achieved if the leaders and policymakers are able and willing to adopt the appropriate monetary and fiscal policies,” Diokno said.
“There is much we can accomplish with the right policy tools, decisive action, and commitment to global cooperation,” he added.
Asian crisis
The AFF brings together regional leaders in government and business to exchange insights on the global economy from an Asian perspective.
Diokno recounted the many crises the Philippines has encountered through the years.
“I’ve seen when the Philippine economy shrunk by 7 percent for two consecutive years in the mid-80s; when the gross international reserves went down to two (weeks’) worth of imports; when the debt-to-GDP ratio was more than 100 percent; when the peso depreciated precipitously as a result of the Asian financial crisis. The banks’ non-performing loan ratios were high and unsustainable,” the DoF chief recalled.
The Philippines weathered the storms through the introduction of reforms by administration after administration, he explained.
“But we did recover. The Philippine economy steadily grew at an average rate of about six percent. Before the pandemic, the debt-to-GDP ratio was less than 40 percent. The fiscal deficit was around three percent of GDP. The banks were sound and well-capitalized. All these reforms made the Philippine economy resilient in crises,” he added.
“When the Philippine economy shrunk by more than nine percent at the height of the pandemic, the government decisively intensified its measures by amending the Foreign Investments Act, the Retail Trade Liberalization Act, and the Public Service Act to relax foreign investment restrictions and further open the Philippines to the global economy.”
Source: Daily Tibune