The Philippines higher prices of goods will linger but is nowhere near the dreaded stagflation

The Philippines higher prices of goods will linger but is nowhere near the dreaded stagflation

The Philippines is not near dreaded stagflation, or a combination of high inflation and GDP contraction, even as prices were expected to rise quickly throughout the year, according to economists.

“There is no reason to worry about stagflation. At least not yet,” said Moody’s Analytics’ chief Asia-Pacific economist Steven Cochrane in a report.

Due to expensive food, especially pork and vegetables the rate of increase in prices of basic commodities jumped to a two-year high of 4.2 percent last month, already beyond the government’s target range of 2 to 4 percent.

“Stagflation is a persistent period of high inflation, with slow economic growth and high unemployment. The Philippines’ economy right now is quite dynamic and does not fit these criteria,” Cochrane said.

Cochrane’s report added, “the economy is emerging from the external shock of the COVID-19 pandemic that caused recession in the first half of 2020."

“The economy is growing its way out of that deep hole. It has not fully recovered but is on its way,” it said.

Cochrane pointed out that" during this period, in which domestic demand was first staunched by quarantines, and is now improving as quarantines are lifted, there are bound to be supply shortages of some goods and services as pent-up demand is released into the economy."

Furthermore, Cochrane also said that the jobless rate averaged a 15-year high of 10.4 percent in 2020 but at the height of the longest and most stringent COVID-19, the unemployment rate already eased from double-digit highs lockdown in the region.

“It has a way to go to return to its pre-pandemic rate of about 5 percent but it is edging down,” he said.

“There is no guarantee that inflation will not accelerate as the economy recovers. Indeed, monthly inflation may be volatile as demand improves in the coming year. But domestic production will also increase and should eventually catch up with improving demand,” Cochrane added.

He also pointed that “high inflation and high unemployment can be devastating for lower-income households that spend a high share of their limited and uncertain income on basic food items."

However, in a separate research note, Deutsche Bank Research chief economist Michael Spencer said he expected headline inflation “to remain above target for most of the year.”

“When food prices first began rising more quickly late last year, we attributed it to the extreme weather events that had all hit the country in the first half of November [2020],” said Spencer.

“But at the same time, pork prices rose sharply and while our initial impulse was that this was also a consequence of the weather, it now appears more serious,” Spencer said.

“We now expect that food price inflation will continue to rise for another two or three months and remain elevated until late this year. Core inflation will also likely rise in the second quarter. By the end of the year, we expect headline inflation to be back below 4 percent,” Spencer added.

Metrobank research analyst Pauline Revillas said that the policymaking Monetary Board will keep key interest rates steady during its first meeting on the monetary policy stance in 2021.

“The BSP already said that the elevated inflation in January is consistent with the assessment of a transitory uptick in inflation in the first half of the year. Direct measures to address the supply issues of the agri-commodities affected, particularly of hogs, are needed to manage inflation expectations in the coming months,” Revillas said in a report.

Source: Inquirer.Net

Share Tweet Send

Related Articles