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Philippines: Inflation seen to ease below 4% by Q4
MANILA, Philippines — Price hikes in goods and services will continue to hover above four percent for the most part of the year, and will only start easing toward the tailend of 2021, a joint research study showed.
In the latest Market Call report by First Metro Investment Corp.(FMIC) and University of Asia and the Pacific (UA&P) Capital Markets Research, it said inflation is unlikely to show any sign of decline in the coming months.
“While severely weakened aggregate demand dampens price pressures, supply side constraints, both here and abroad, remain the key factor why we see inflation going below four percent only by the fourth quarter,” FMIC and UA&P said.
Inflation remained at 4.5 percent in May as lower food prices offset the continued rise in fuel prices. However, pork prices, another driver of inflation during the month, have yet to stabilize due to the lingering impact of African swine fever.
While the government slashed tariffs and increased pork imports, the effect of such intervention is not expected to immediately trickle down to the retail level, the report said.
“While headline inflation rate may not fall below four percent anytime soon, neither do we see the Bangko Sentral ng Pilipinas allowing the thought of monetary tightening in light of the economy’s stubborn weakness,” it said.
The government has maintained its inflation target at two to four percent for 2021, as it insists that upticks in inflation are transitory and will eventually taper off.
The recent lockdown and the COVID-19 vaccine rollout, which has yet to go full steam, will also likely put pressure on prices, especially in light of fractured supply chains.
While the 4.2 percent contraction in gross domestic product in the first quarter was a disappointment, the report said other economic factors may help the economy recover faster.
It said the additional 2.1 million jobs in March could provide the much needed support for an increase in consumer spending.
Infrastructure spending, which also grew 26.7 percent, is seen providing some confidence that such form of employment-boosting spending has gained traction and should continue at a fast pace for the rest of the year.
The exchange rate also appreciated in the past few weeks as more foreign loans came in and the dollar weakened. However, FMIC said this does not seem sustainable in the months ahead, especially with a stronger economic recovery.
Source: https://www.philstar.com/business/2021/05/28/2101268/inflation-seen-ease-below-4-q4