Inflation Is Expected to Peak in the Coming Months. What Happens Next?
The Bangko Sentral ng Pilipinas (BSP)'s latest forecast should serve as a warning about domestic inflation for the last quarter of 2022. While the nation's five-month-long inflation rate climb ended last August, the Philippine economy is likely to see the worst of it from September to October.
Shortage of key food commodities and higher electricity costs are two of the main culprits. It follows athe current global trend caused by supply and logistics issues, fallout from the pandemic, geopolitical conflicts, and more.
In the Philippines, the BSP also cited the depreciating Philippine peso against the U.S. dollar as one of the most significant factors of price increases for the month. “This could be offset in part by the decline in local fuel prices and lower meat prices,” it added.
As of October 3, the current rate of the Philippine peso against the U.S. dollar ratio is at P59.01. Back in September, the peso-to-dollar exchange rate eclipsed the 57-range for the first time ever.
The BSP also said that it would continue to monitor emerging price developments to mitigate price pressures.
August 2022 saw the country's inflation rate hike finally decelerate when it went down to 6.3 percent compared to the 6.4 percent in July. The government projected a two to four percent target band two months earlier. As it stands, the average inflation in the country has been at 6.3 percent.
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"Bond markets had a mini rally during the month, but this vanished as the specter of aggressive Fed policy rate hike in September loomed in the light of stubborn U.S. inflation. We thus expect local 10-year T-bond yields to breach 7 percent by Q4-2022. In the equities front, all sectors posted gains in August, but September looks at further consolidation at 6,100 to 6,500 as Fed and BSP rate hikes impact risk appetite."
Private economists from the First Metro Investment Corp. and the University of Asia and the Pacific recently pointed out in its latest monthly research that we could see inflation peak at 6.7 percent this September and October, too. This could further strain economic prospects as the year closes.
The group also claimed that the second-round domestic effects of the surge in crude oil prices, coupled with rising wages and transport costs, is far from over.
However, positive employment data and moderately positive data on the fiscal front and in the manufacturing sector should help keep domestic demand strong for the rest of the year. The Philippine peso might also catch up with the U.S. dollar in November and December, once cash remittances from Filipinos living and working abroad come in. This could also address the increasing prices of commodities, the report said.
The study also expressed belief that that we could still see a positive gross domestic product (GDP) growth by year's end.
"While elevated inflation may slow consumer spending, the peso depreciation which benefits some 70 percent of the population should provide much of the boost. In short, we expect full-year GDP growth at 6.5 percent," it noted.
In 2021, the Philippines' GDP was at 5.6 percent.
The country's average monthly inflation rate was projected at 5.6 percent earlier this year. We can expect to see its peak in the last quarter of the year, as well. In August, the BSP reported that inflation should likely slow down and settle within the target range by the third quarter of 2023.