The weaker peso should offset the negative impact of inflation, with full-year economic growth seen to hover around 6.5 percent, according to a report released yesterday.
The latest issue of the Market Call showed to portray “an economy sufficiently robust to withstand the global slowdown.”
“The economy has relied much on domestic demand, and the signs confirm our view. Vigorous gains in July employment, some recovery in the manufacturing sector and likely rebound in infrastructure spending support this,” the report said.
“While inflation above six percent may cut into consumer spending, the significant peso depreciation puts more money in the hands of overseas Filipino worker (OFW) families, business process outsourcing workers and exports and their suppliers. This should blunt most of the negative impact of inflation and enable the economy to expand by 6.5 percent in Q4 2022,” it added.
It said peak inflation may be at 6.7 percent by September or October this year.
According to the report, the inflation outlook may put a damper in the second semester outlook, as it will likely remain above 6.5 percent in the fourth quarter.
“The second round domestic effects of the sharp surge of crude oil prices in H1 have not completely played out. Besides, food inflation in the US and other advanced countries remain stubbornly high due to droughts and other supply issues,” the report said.
According to the Market Call, the exchange rate will remain volatile depending on US inflation and Fed moves, “even though the downside stays limited due to the burgeoning trade deficit.”
“As mentioned earlier, the local currency may gain some ground temporarily in November and December due to the bulge in OFW remittances,” the report said.
“Although there is no need for BSP (Bangko Sentral ng Pilipinas) to match the Fed hikes one-for-one due to the much higher inflation in the US, the peso-dollar rate will take a further hit should BSP lag too much behind the Fed’s moves,” it added.
The report pointed out that BSP raised policy rates by 50 basis points (bps) in its September 22 meeting after the Fed aggressively boosted their rates by 75 bps given that US August inflation rebounded.
In deciding to raise the policy rate anew, the Monetary Board noted that price pressures continue to broaden.
The board stressed the risks to the inflation outlook “remain tilted toward the upside until 2023 and broadly balanced in 2024.”
Full-year inflation average is now pegged at 5.6 percent, breaching the government’s full-year target range of between 2 and 4 percent by more than one-and-a-half percentage point.
For 2023, inflation is seen to still breach the target, albeit slightly, at 4.1 percent before slowing down to 3 percent the following year.
After five consecutive months of uptrend, the country’s inflation slightly eased in August to 6.3 percent due mainly to lower annual increases in transportation, food and non-alcoholic beverages.
The actual average inflation from January to August now stands at 4.9 percent, way above the full-year average target.
But core inflation, which excludes volatile food and energy items, shoot up to 4.6 percent from 3.9 percent in July.
