Is the worst over? Maybe

Pollsters often say that when Metro Manila sneezes, the whole country will likewise sneeze – but in a month or so. If the recent inflation figures released by the Philippine Statistics Authority (PSA) are to be believed, we should see inflation abating countrywide soon.

After months of seeing prices of basic commodities rising, the PSA said that inflation in the National Capital Region, alternatively referred to as Metro Manila, slipped to 6.3 percent last month. This is much lower than the seven percent recorded in August.

Lower increases were observed for alcoholic beverages and tobacco (21.6 percent); housing, water, electricity, gas, and other fuels (4.2 percent); furnishing, household equipment, routine maintenance of the house (three percent); and restaurant and miscellaneous goods and services (4.4 percent).

Nationwide, the PSA put inflation at 6.7 percent in September, higher than the 6.4 percent in August.

If the Philippines survives October without any major internal and external upheavals that could weigh in on inflation, like a super typhoon that could affect food supply and prices, the worst may be over and it could be back to normal for the nation even before the year ends.

Normalizing outlooks

Domestic inflation throughout the previous months since January has been a drag to economic growth, causing economic managers to revise the country’s growth targets to a range of 4.8 to 5.2 percent, from the previous two to four percent target.

While the latest inflation forecast for 2019 (three to four percent) is still a bit higher than what was previously stated, projections for years 2020 to 2022 are now back on track, at the original levels of two to four percent.

Happy news indeed for a nation that continues to target growth at levels that many nations still envy, i.e., 6.5 to 6.9 percent, although this is slightly lower than the original target of seven to eight percent for the year. Growth targets for 2019 to 2022 at seven to eight percent remain the same.

Earlier, three international lending institutions revised their growth outlook for the Philippines downwards, but maintained optimistic views that the worst was over.

The Asian Development Bank, for example, said that it expects Philippine economic growth to be lower at 6.4 percent this year, but would rise to 6.7 percent next year. More importantly, the bank underscored that the Philippines’ outlook is much better than its growth projection of six percent and 5.1 percent for Developing Asia in 2018 and 2019, respectively.

The International Monetary Fund had also revised its growth forecast for the Philippine to 6.5 percent instead of 6.7 percent this year, but agreed that our performance continues to be respectable and strong compared to other developing economies.

The World Bank, likewise, downgraded its projections for the Philippine economy this year to 6.5 percent from 6.7 percent, but remained optimistic that the economy would growth at 6.7 percent and 6.6 percent in 2019 and 2020, respectively.

Extraordinary events

All these sums up the view that the fundamentals of the Philippine economy continue to be strong – despite the extraordinary events that took place during the year that had shaken other economies, including China.

First off was the play on international crude oil prices, something that went largely ignored during the last decade as production oversupply pulled down prices to an average low of about $50 per barrel. Today, we’re seeing $80-a-barrel crudes, and with continued supply uncertainties.

With new excise taxes on oil imposed at the start of the year, oil products sold at the pumps saw marked increases which raised anxiety levels of businesses, prompting them to hedge by raising prices of domestic produce and services.

The succeeding tightness in food supply, caused by speculative trading and inefficiencies in the government-controlled rice stock management system, as well as damage to crops from recent typhoons, saw marked increases in prices of basic commodities. Acute supply deficiencies of rice in the domestic market, in particular, stoked consumer anxiety.

The inability of government economic planners to adopt more aggressive responses to support the Bangko Sentral ng Pilipinas’ policy rate hikes of a cumulative 150 basis points this year stoked inflation to current levels which had not been felt for a long time.

Then, Filipinos saw the cost of the US dollar rising as the US economy gained the upper hand in the tit-for-tat trade war declared by US President Donald Trump against China.

For our overseas Filipinos living and working abroad, a stronger US dollar is welcome. But for the overall economy that is importing equipment and supplies for the government’s P8-trillion infrastructure program, a weaker peso means revising upward its construction spending.

Moving forward

As long as the government keeps a tight watch over food supply during the period when the economy is adjusting to higher crude prices and the weaker peso, weathering the recent crisis will be manageable. As a nation, we have gone through worst times.

A recalculation of the pressure that comes from an extraordinary high-cost the government’s full-blown Build Build Build infrastructure program may be needed to enable the peso to be less vulnerable in future when building projects accelerate.

Crude oil prices are expected to stabilize within reasonable levels in the next years, but the biggest uncertainty remains with the effect resulting from an escalated US-China trade war.

Again, fortunately for the Philippines, our economic fundamentals remain rock solid, so much so that hiccups resulting from recent governance blips have been surmountable.

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