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Philippines: Inflation a ‘key risk’ to Filipino consumers this year — Fitch
MANILA, Philippines — Inflation will likely remain a problem in the Philippines over the remaining months of the year and will weigh on consumer confidence that is just starting to recover from pandemic disruptions.
As the global economy emerges from lockdowns, the Philippines was not spared from elevated inflation that’s also worrying many countries amid a combo of statistical base effects and supply-demand discrepancy. In a commentary on Friday, Fitch Solutions, a unit of the Fitch Group, forecast inflation at home to average 4.5% this year that, if realized, would breach the Bangko Sentral ng Pilipinas’ 2-4% annual target.
In September, inflation eased to 4.8%, putting the 9-month average to 4.5%.
The inflation problem won’t go away without dampening a fragile recovery in Filipinos’ consumer confidence. Fitch Solutions forecast household consumption to grow 3.5% year-on-year in 2021, reversing last year’s contraction when lockdowns were at their tightest. In 2022, the Fitch unit predicts consumer spending will expand 5.1% on-year to a total of P11.1 trillion.
“We believe that rising inflation is a key risk to consumer spending over the remainder of 2021, as it has the potential to erode purchasing power,” Fitch Solutions said.
It is only next year when spikes in consumer prices are expected to return within the government’s target. The Fitch unit projects inflation to soften to 3.7% next year, albeit higher than its previous forecast of 3.4% as food and energy prices would likely stay elevated due to persistent supply-side issues.
With price pressures not seen easing anytime soon, Fitch Solutions said the BSP is expected to tighten monetary policy “faster” on 2022. Currently, the policy rate has been unchanged at record-low 2% since November last year. And the central bank, which downplayed the current price hikes as “transitory”, vows to keep giving the economy the juice it needs for as long as it can.
“If inflation proves not to be transitory, central banks will be left with few alternatives but to raise rates, negatively affecting the spending outlooks for households with large debt exposure,” the Fitch unit said.
Beyond prices however, Fitch Solutions said the recovery in consumer confidence would heavily rely on the government’s ability to vaccinate enough people to bring down cases and hospitalization rate.
The Duterte administration has made it clear that pandemic restrictions cannot be lifted until herd immunity has been reached. But as of end-September, only 25.1% of the country’s population had received at least one dose amid tight supply of vaccines, lower than the 52% Asia average during the period.
“We believe that restrictions will ease further as more Filipinos receive Covid-19 vaccines,” Fitch Solutions said.
“Our global view for a notable recovery in consumer spending relies on the ability of authorities to vaccinate a large enough proportion of their populations… these factors will lead to governments gradually lifting restrictions, which will boost consumer confidence and retail sales,” it added.
Source: https://www.philstar.com/business/2021/10/29/2137568/inflation-key-risk-filipino-consumers-year-fitch