Inflation seen rising

Catherine Talavera - The Philippine Star
Inflation seen rising
“We expect inflation to rise over the coming months, but probably not enough to worry the central bank,” said Gareth Leather, senior Asia economist at UK-based Capital Economics.
Walter Bollozos

MANILA, Philippines — The country’s inflation is seen to temporarily rise in the coming months amid high global commodity prices, but is expected to return within the government’s target level, according to an international think tank.

“We expect inflation to rise over the coming months, but probably not enough to worry the central bank,” said Gareth Leather, senior Asia economist at UK-based Capital Economics.

While inflation held steady at three percent in February, Leather said it is likely to climb over the coming months on the back of steep increases in global commodity prices.

“That said, the rise in inflation should prove temporary, and we expect it to drop back to within the central bank’s two to four percent target range by the end of the year,” Leather said in a weekly brief.

“We think the central bank will ‘look through’ a temporary rise in inflation and keep rates unchanged this year. In contrast, the consensus is forecasting 50bps of hikes this year,” he said.

Capital Economics said it expects the Bangko Sentral ng Philipinas (BSP) to keep interest rates unchanged, not just at its meeting this Thursday, but throughout the year.

Meanwhile, the think tank noted that a bigger concern for the Philippine government is the weakness of the country’s recovery.

“Despite a strong rebound over the second half of last year, GDP (gross domestic product) was still three percent lower than its pre-pandemic level and 14 percent behind its pre-pandemic trend in Q4. And the consumption-driven economy is likely to be hit especially hard by the drag on consumer purchasing power from higher global energy prices,” Leather said.

The UK-based think tank recently cut its GDP forecast for the Philippines to 7.2 percent from an earlier projection of eight percent, driven by the Ukraine-Russia conflict.

Last week, Socioeconomic Planning Secretary Karl Chua said the Philippine economy remained on track to return to pre-pandemic levels this year despite the Ukraine-Russia war, driven by the growth potential of the domestic market.

“We believe we have a very strong domestic economy that can withstand that,” Chua said, adding that the government believes the current global tension is temporary.

The Development Budget Coordination Committee (DBCC) earlier said it was looking at a faster GDP growth of seven to nine percent this year.

“I think we are still very much on track with our projected growth target for the year,” Chua said.

Chua said there have been some recent positive developments in the domestic economy this year, such as the downgrading of the National Capital Region and other areas to Alert Level 1, which has added around P9.4 billion to the economy per week.

“Hopefully we can shift the entire country to Alert Level 1, that will add another P16 billion per week, and hopefully we can open all face to face schooling, which will add another P12 billion per week,” Chua said.

“So we have a very strong potential to grow on the domestic front,” Chua said.

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