Dominguez: Inflation under control

MANILA, Philippines — Finance Secretary Carlos Dominguez III on Thursday assured the public that the government is keeping inflation in check.

The overall increase in prices of key consumer items spiked to a fresh five-year high of 4.6 percent in May, putting the year-to-date figure to 4.1 percent or above the Bangko Sentral ng Pilipinas’ 2-4 percent target range.

Asked if inflation is under control, Dominguez told Bloomberg TV in an interview: “Yes, absolutely.”

“The inflation rate for first four months is just slightly higher than the high-end of the target of the central bank... When we looked at the last figures, the inflation between April and May had not increased,” Dominguez explained.

“So we think it’s stabilizing and our projections for next year are inflation rate of around 3.5 percent,” he added.

According to a first quarter Social Weather Stations poll released last month, public satisfaction with the Duterte administration’s handling of inflation sharply declined by 18 points to 6 percent. Separately, an April survey by pollster Pulse Asia showed wages and inflation remain to be the top national concerns among Filipinos.

In a bid to temper inflation and keep local yields competitive, the BSP on Wednesday lifted its benchmark rates for a second consecutive month. However, some analysts say more rate hikes are necessary to fight inflation and strengthen the peso.

Citing a slowdown in inflation momentum, the central bank on Wednesday also decided to trim its inflation forecasts to 4.5 percent from its previous estimate of 4.6 percent for 2018, and to 3.3 percent from 3.4 percent for next year.

The BSP likewise expects inflation to peak in the third quarter of 2018, or “earlier” than its previous projection.

“Inflation also is a sign of growing and robust economy. I mean, you can look around at certain countries in this area who are trying to jack up their economies to get to an inflation rate of 2 percent and are not making it,” Dominguez told Bloomberg TV.

“We don’t want any second-round effects. We are managing against speculation and we’re very firm about our own projections,” he added.

Weak peso

People have blamed rising prices on the Duterte administration’s tax reform law and supply-side factors like higher global oil prices worsened by the continuing depreciation of the peso, which has been hovering at 12-year lows and pushing up import costs.

Meanwhile, analysts say the risk of foreign funds keeping their securities in the local peso increased much further after the local currency slumped to the P53-per-dollar level.

But for the Philippines’ finance chief, the peso’s weakness, which was partly due to a widening trade gap and normalization of monetary policy in advanced economies, could benefit the country.

“Let’s put it this way, we have around 11 million people who live outside of our country and work outside our country and they remit roughly $30 billion a year to the Philippines. At an average family size of four, that means there are 44 million Filipinos who benefit from this change,” Dominguez told Bloomberg TV.

“We also have a large BPO industry and... the depreciated peso certainly helps their profitability,” he added. “The trade deficit is a sign of strength of our economy.”