Government sees inflation's peak as it misses target for second straight year

Ramon Royandoyan - Philstar.com

MANILA, Philippines (Update 1, 11:04 a.m.) — Inflation accelerated to its fastest pace in 14 years in December, with the national government missing its annual target for the second straight year amid a supply-demand imbalance that has stoked painfully high price growth.

Inflation, as measured by the consumer price index, quickened to 8.1% year-on-year in December, the Philippine Statistics Authority reported Thursday. Data showed this was the fastest reading since November 2008.

For the entire 2022, inflation averaged 5.8%, way above the Bangko Sentral ng Pilipinas’ 2-4% target for this year. This means BSP Governor Felipe Medalla would have to explain to President Ferdinand Marcos Jr., who took office in June last year, why the inflation target was not met.

At the start of its term, the Marcos Jr. administration projected inflation would settle between 4.5-5.5% this year. But supply chain issues, expensive fuel prices, and a weak peso caused more problems than the government had thought they would. Economic managers later revised their annual inflation forecast to 5.8% in their year-end briefing. 

Core inflation, computed without volatile items such as fuel and food, rose to 6.9% year-on-year in December. 

Food prices were largely responsible for the uptick in December, peak spending season as Filipinos welcomed the holidays. National statisticians saw increases in the prices of vegetables (32.4%), rice (3.4%), and fruits and nuts (7.6%). 

The BSP, which aggressively hiked interest rates this year to temper resurgent demand and bring it in line with limited supply, projected inflation would peak in December. Likewise, the BSP expects inflation to slow down beginning in 2023.

Domini Velasquez, chief economist at China Banking Corp., said that while inflation likely peaked in December, "we are not out of the woods yet".

"In 2023, we expect inflation to breach the BSP’s target yet again, possibly higher than 5.0%. Key domestic risks are higher electricity and water tariffs, continued higher prices for food, and calls for wage and transport fare increases," Velasquez said.

"On the international front, oil prices will likely not fall as initially expected as China’s reopening will drive up demand for the commodity," she added.

BSP to stay hawkish?

National statistician Claire Dennis Mapa told journalists that the uptrend in food prices, especially vegetables, was due to typhoons that battered various parts of the country amid the monsoon season.

The inflation of vegetable prices averaged 7.8% in 2022. In December alone, vegetable inflation jumped 32.4% year-on-year, the highest since February 1999 when it hit 44%. The price of red onion, a staple vegetable that has proven to be more expensive by the day, increased in the weeks leading to December, according to the PSA’s monitoring.

Rice prices could see increases in the coming months as well. Regular rice, which cost P38 in 2021, rose to an average of P40 in 2022.

Even Noche Buena fixtures, such as ham (14.4%) and fruit cocktail (9.4%), saw prices shoot up in December.

The Marcos Jr. administration would need to mount a heftier policy response to inflation. Citing market force as largely responsible for the uptrend for most of the year, core inflation averaged 3.9% in 2022, an increase from the 3% average recorded in the preceding year. In 2019, this stood at 3.4%.

But analysts like Nicholas Antonio Mapa, senior economist at ING Bank in Manila, expect inflation to slow down this year.

“Storm damage to crops may have helped fan price pressures for basic food items but elevated transport and utility costs for nearly a year may have also contributed to price pressures spreading across the CPI basket.  Meanwhile, resurgent demand reflected in the stronger-than-expected GDP growth, fanned inflation even further with notable increases in inflation for the services sector,” he said in an emailed commentary.

The ING economist expects the BSP to keep a hawkish stance in the coming months.

Mapa also expects the BSP to match the US Federal Reserve’s moves to tame inflation. Experts everywhere expect the global economy to land face first into a recession in 2023, due in part to interest rate hikes by central banks.

“However, once the Fed carries out its much-anticipated ‘pivot’ we believe Governor Medalla could consider a pause of his own as policy rates are currently already in restrictive territory,” he added.

Remittances sustain growth as expats help ease inflation's sting

Ramon Royandoyan - Philstar.com

MANILA, Philippines — Money sent home by Filipinos overseas inched up in September as they rushed to support their families weathering the impact of expensive consumer prices.

Remittances coursed through banks inched up 3.8% year-on-year to $2.84 billion in September, the Bangko Sentral ng Pilipinas reported Tuesday. This, however, was slower than 4.3% recorded in August. 

Year-to-date, cash remittances amounted to $23.83 billion. 

Remittances are considered the lifeblood of the consumption-dependent Philippine economy. Money sent home by overseas Filipinos augment their families’ income here. 

These remittances are also crucial sources of dollars for the country. Remittances amounted to $31.42 billion last year, expanding 5.1% compared to the 2020 haul. The collections slightly missed the central bank’s forecast of 6% growth, but the BSP hopes remittances would rise this year.

That said, the surging dollar trend has left the peso sinking to new lows, which convinced many this will benefit families of overseas Filipinos. But that has not been the case as a strong dollar trend is only adding fuel to painfully high inflation that’s squeezing household budgets.

Domini Velasquez, chief economist at China Banking Corp, attributed the growth in September remittances to three economic events.

“The increase in pace in the growth in cash remittances were likely driven by 3 factors: better economic outlook in some of the host countries such as the US, ASEAN, and the Middle East; high domestic inflation may compel overseas Filipinos to help out more in terms of sending money from abroad; and OFs may want to take advantage of a weak peso,” she said in a Viber message.

BSP data broken down showed 41.7% of cash remittances in the first nine months came from the United States, while the rest came from Singapore, Saudi Arabia, Japan, the United Kingdom, the United Arab Emirates, Canada, Qatar, Taiwan, and South Korea.

Remittance from land-based workers grew 4.1% year-on-year to $2.25 billion in September. Sea-based workers sent $590 million, inching up 2.4% on a yearly basis. 

Velasquez cited that opportunities in remittance-rich countries such as the US and other parts of Asia, and the Middle East will offset the decline recorded in money sent by Filipinos based in Europe.

“The move towards full face-to-face classes in November will also bring in more remittances towards end of 2022,” Velasquez said, as expats send more money to their families to pay for tuition fees.

“Lastly, we might see more holiday remittances as Filipinos will likely celebrate with looser restrictions this year compared to last (e.g. physical company/school Christmas parties),” she added.

Beating expectations, Philippines posts faster Q3 growth despite inflation

Ramon Royandoyan - Philstar.com 

MANILA, Philippines — The Philippine economy managed to squeeze out a modest growth in the third quarter, beating expectations of a slower expansion in the face of boiling inflation.

Gross domestic product (GDP) grew 7.6% year-on-year in the July-September period, the Philippine Statistics Authority reported Thursday.

The latest reading was slightly faster compared to the upwardly revised 7.5% expansion recorded in the previous quarter. It was also way past market expectations of a 6.1% growth. 

Quarter-on-quarter, the PSA said GDP grew 2.9%, a turnaround from 0.1% contraction posted in the preceding quarter.  

READ: No reprieve for Filipinos as inflation boils to over 10-year high in October

That the economy grew slightly faster last quarter came as a surprise as consumer spending, a major growth engine, feels the heat of sizzling inflation. Data showed household final consumption expenditure grew 8.0% year-on-year in the third quarter, slower than 8.6% recorded in the preceding three months.

Three subsectors that was responsible for last quarter’s growth: restaurants and hotels, transport, and food. The PSA reckoned that consumer spending hit P10.37 trillion in the first nine months, accounting for 73% of GDP.

Consumer spending did all the heavy-lifting while government support fades. Data showed government spending sharply slowed to 0.8% annually in the third quarter from 11.1% in the second quarter. Speaking to reporters, Socioeconomic Planning Secretary Arsenio Balisacan said the national government downloaded much of its spending earlier in the first half of the year. This meant, there were fewer public resources available to spend.

Nicholas Mapa, senior economist at ING Bank in Manila, said Filipinos are likely extending so-called “revenge spending” activities after almost two full years under lockdowns. This, despite an elevated inflation that’s pushing up the cost of living.

“One explanation would be overseas Filipino remittances which may be supercharged by a more favorable exchange rate.  However we believe that consumers are also digging deeper into savings, which unfortunately have yet to return to pre-Covid levels,” Mapa said in an e-mailed commentary.

“For now, it appears that households can fund extended revenge spending activities by drawing down on savings for a little longer however this could increase their vulnerability to potential shocks to income down the road,” he added.

Leonardo Lanzona, an economist at Ateneo De Manila University, shared the same view. “Perhaps people had started hoarding in anticipation of higher prices,” he said.

The Bangko Sentral ng Pilipinas had projected in August that inflation would peak by September or October, but the latest data showed that might not be the case. The PSA earlier reckoned price growth would accelerate further in November, as the damage wrought by recent typhoons has yet to be priced in.

Despite the inflation onslaught, the Marcos administration is still on track to meet its watered-down goal. In the first nine months of the year, GDP averaged 7.7%, above the government’s 6.5-7.5% target for 2022.

Domini Velasquez, chief economist at China Banking Corp., said this would strengthen the case for another set of interest rate hikes. The benchmark rate is now at 4.25% and is expected to soar higher as the BSP vows to match the US Federal Reserve’s aggressive rate hikes.

 “It also provides more room for wiggle room for the BSP to raise rates by at least 6% without slowing growth too much,” she said in a Viber message.