This April 2, 2018 photo shows a high rise building construction on Edsa in Quezon Avenue.
The STAR/Boy Santos
BSP: Inflation dampens business confidence in Q3
(Philstar.com) - September 6, 2018 - 8:45pm

MANILA, Philippines — Faster inflation has claimed another victim, this time, businesses whose optimism on the economy has dropped to its weakest level in more than eight years, the Bangko Sentral ng Pilipinas reported on Thursday.

According to the central bank's Business Expectations Survey, the confidence index among firms declined to 30.1 percent in the third quarter. This is the lowest mark recorded since the first quarter of 2010.

The decrease in the index showed that while most businesses are still positive on the economy, a less number of them shared this optimism.

"Respondents attributed their weaker sentiment during the third quarter to increasing prices of basic goods and commodities in the global market, augmented by the effects of the Tax Reform for Acceleration and Inclusion (TRAIN) on prices of domestic goods," BSP said in a statement.

Inflation, as measured by the consumer price index, accelerated to 6.4 percent in August, a new over nine-year high, propelled mainly by higher food prices such as rice and vegetables.

Government critics have partly blamed the TRAIN law, enacted in January, for the persistent acceleration in prices after the law raised fuel excise levies, among others. The August inflation figure marked the eighth consecutive month that inflation went up.

BSP said rising prices have started to increase businesses' overhead costs, while supply constraints for raw materials have also affected operations.

There was also less demand for their products and services from consumers reeling from a weakening peso, which slumped to a new 12-year-low of 53.8 against the dollar on Thursday.

"Aside from sluggish consumer demand during the rainy season, respondents' outlook was dampened by higher input costs brought about by rising commodity prices, weakening of the peso, and increasing minimum wage requirements," the central bank said.

To try to temper inflation, BSP has raised its benchmark interest rates by 100 basis points this year. As a result, more businesses now expect "tighter financial conditions" as banks using BSP rate as basis increase their loan charges.

This, in effect, would make securing bank credit for business expansion plans more expensive. 

Despite the bleaker view this quarter, more businesses are positive in the fourth quarter when holiday demand typically boost consumption. BSP's confidence index rose to 42.6 percent from 40.4 percent in the previous quarter.

"Positive outlook was likewise driven by respondents' expectations of more favorable macroeconomic conditions in the country for the next quarter (particularly robust GDP growth), sustained foreign investment inflows and the steady stream of overseas Filipinos' remittances," the report said.

Due to faster-than-expected inflation in August, economic officials have said they would likely downgrade its 7 to 8 percent growth target for the year. Gross domestic product (GDP) grew 6 percent in the second quarter, the slowest in three years.

The survey polled 1,466 nationwide from July 2 to Aug. 29, with 83.6 percent responding.
 

CONFIDENCE INDEX
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