The inflation issue

As we begin to move forward past the May elections, we start to look ahead at what’s next for the country. The easing of restrictions beginning earlier in the year following a surge in Omicron cases started the slow, but steady journey to economic recovery. Recovery was slow due to many factors, most notably the state of COVID in the country, the continuing conflict between Russia-Ukraine, and the uncertainty of the presidential elections.

All of these unknowns contributed significantly to the continued increase in inflation and the instability in the market. The first half of 2022 was exceptionally hard because everyone was waiting for the outcome of the elections. After all, the next president-elect would greatly impact the next six years for the Philippines.

Now that the polls have yielded their results and we have a presumptive president, we should have a slightly better view of how economic recovery will look for the remainder of 2022 and onwards. While many are optimistic and predict the country to head back toward pre-pandemic levels by the third or fourth quarter, this is still a very uncertain prediction due to the current state of the world and the uncertainty of inflation.

Inflation is expected to continue to increase for the next three years due to the ongoing conflict in Ukraine affecting the global oil and food prices, according to a survey by the Bangko Sentral ng Pilipinas (BSP). The Department of Economic Research predicts a higher inflation rate of 4.6 percent for 2022, which is at the high upper end of the government’s target range.

The contributing factors to increased inflation include continued disruptions to the supply chain stemming from ongoing global conflict, new lockdowns in China, and rising global prices. All of these contribute to the higher cost of oil and essential basic food commodities. Plus, with no end to the current Russia-Ukraine conflict in sight, this could mean significant price increases across the board.

Other less significant factors include the weakening of the peso against the dollar, the uncertain state of foreign investments, and potential new emerging strains of COVID-19. Overall, much of the increase is due to instability, and at this point, no one can accurately predict what will happen in the coming months.

What is clear is that Filipinos will be grappling with rising prices for the foreseeable future, coupled with businesses still trying to get back on their feet after the impact of the global pandemic, and it’s going to be difficult for a substantial portion of the population to make ends meet. It was already difficult to begin with before all of this – in the coming months, it will be even more challenging.

Currently, the BSP supports the continued implementation of government subsidies, including the fuel subsidy and livestock and competitiveness bill, as well as other interventions that can help mitigate inflation. Strong economic measures will need to be implemented to ensure foreign investments remain confident and keep them from withdrawing. Actions need to be taken swiftly to ensure things don’t go from bad to worse.

The continued opening of the economy will help. Currently, more than half of the total localities are at Alert Level 1, allowing citizens more mobility. This will help. Some schools have also begun to resume face-to-face classes, while others are set to follow suit. Despite the difficulties we face, the more we can continue to resume normal operations in the country, the more we can help get the economy back on track.

Some things are beyond our control. We can’t control what happens in Ukraine, new lockdown measures in China are unfortunate, but can’t be helped on our end, but we can be purposeful about how we react to it. We already know the ongoing conflict will impact prices – we need to have measures in place to help mitigate this and protect Filipinos from the economic impact. If the pandemic has taught us anything these past two years, it should be more robust business continuity and economic resiliency.

The market’s performance this week and the weeks ahead will continue to be influenced by many contributing factors. Some of these include continued easing of restrictions, resuming businesses, and additional information about the incoming administration’s plans and programs, including economic team members and policies.

In the meantime, individually, we need to contribute in any way we can. Even as restrictions continue to ease, let’s remain careful and cognizant of safety protocols. Let’s continue to wear our masks, practice social distancing, keep our offices and workplaces safe, and get vaccinated and boosted as soon as possible. If we can maintain community safety and ensure more people stay COVID-19 free, the more focused we can remain on growing businesses and getting the country back on its feet again.