Economy 5 MIN READ

Inflation to stay above 8% this month

December 26, 2022By Business World

HEADLINE INFLATION could stay at the 8% level this month amid supply constraints during the holidays and oil price movements, an analyst said.

“For December 2022, I’m projecting it to reach at least 8%. Maybe the 8.5% projected by BSP (Bangko Sentral ng Pilipinas) is feasible given that oil prices continue to swivel and supply constraints have been persistent, even during the holidays,” Asian Institute of Management (AIM) economist John Paolo R. Rivera said in an interview with BusinessWorld Live on Monday.

This would bring the full-year average to 6-6.5%, Mr. Rivera said.

He said following a fresh peak in December, inflation may begin easing as early as January.

“Historically speaking, the inflation rate has been always at its low in the beginning of the year, say January, February, because they’re the months that we experience relatively lower demand after the holidays. So, I expect that inflation would start to temper by January as demand starts to slow down, again as we end the holiday season,” Mr. Rivera said.

“The 2-4% target band can only be achievable once we have addressed our supply constraints. Until supply constraints particularly in food and [agriculture] are consistent, achieving a 2-4% inflation will still be a long way,” he added.

He said the relaxation of tariffs is only helpful in the short term and the government should invest in agricultural development to ease supply constraints through higher production.

“The reduction to constraints in transportation in the distribution of food, and of course investment in technology, that will allow our [agriculture sector] to be more commercialized than largely subsistence… That would definitely be able to solve inflation problems in the future driven by food prices,” he said.

Malacañang this month approved the extension of lower tariffs on meat of swine, maize, rice, and coal for at least a year.

Mr. Rivera added the impact of the BSP’s tightening cycle on inflation will likely only be felt by next year.

He said upside risks to inflation next year will be oil prices, political issues, and supply constraints, among others.

“I think the central bank would slowly temper hiking rates given that demand is slowing down and they would definitely lower it as soon as indicators would show that the economy is starting to go back to healthy levels… and of course, the currency is starting to go back to lower 50s level,” he added.

Headline inflation stood at 8% in November, the fastest since the 9.1% print during the Global Financial Crisis in November 2008. The latest print was quicker than the 7.7% in October and 3.7% in November 2021.

For the first 11 months, inflation averaged 5.6%, faster than the 4% in the same period a year ago. This was well above the BSP’s 2-4% target for the year but was still below its full-year forecast of 5.8%.

As of Dec. 20, local prices of gasoline have risen by P13.95 a liter this year, by P27.50 for diesel, and by P20.80 for kerosene.

Meanwhile, on Friday, oil prices jumped after Moscow announced it might cut crude output in response to the G7 price cap on Russian exports.

US crude rose 2.67% to settle at $79.56 per barrel, while Brent settled at $83.92 per barrel, up 3.63% on the day.

The BSP has raised benchmark interest rates by 350 basis points since May in its fight against rising inflation.

The central bank this month said they expect inflation to rise slightly in December due to higher food prices caused by recent typhoon and increased liquefied petroleum gas prices and electricity rates.

Still, the consumer price index is expected to return to the BSP’s 2-4% target band by the second half of 2023, and go back to the low end of the target range by the fourth quarter of 2023 and first quarter of 2024 due to base effects, the central bank said.

GDP GROWTH LIKELY WITHIN TARGET

Meanwhile, Mr. Rivera said gross domestic product (GDP) growth may reach 7.8% to 8% this quarter on increased spending amid the holiday season.

“Historically, our GDP is registering the highest growth in the fourth quarter. On that note, the year-on-year growth this 2022, I’m pegging it at around 6.5-7% given the previous quarterly GDP growth rates,” he said.

“Optimistically, given the headwinds that we experienced for 2022, I’m very positive the Philippines will end 2022 with a good figure … given that we’re still facing risks from the pandemic,” Mr. Rivera added.

Economic growth may then ease to start 2023 due to reduced consumption following the holidays but rebound within the year, he said, although the coronavirus pandemic will continue to be a risk to expansion.

“We expect that by 2023, the economy would be much closer to pre-pandemic levels… Businesses would start to open more liberally. More employment would be generated given that a lot of foreign investments can now start coming in as the Philippine economy stabilizes,” Mr. Rivera said.

GDP grew by 7.6% in the third quarter, slightly faster than the revised 7.5% growth in the second quarter and 7% a year earlier.

For the first nine months of the year, GDP growth averaged 7.7%, above the government’s 6.5-7.5% target for 2022.

In 2023, the Philippine economy is expected to expand by a slightly slower 6-7% amid recession risks in advanced economies. — AMCS

This article originally appeared on bworldonline.com

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