MANILA – Core inflation and second-round effects are major economic factors to watch out for in the Philippines, an executive of the International Monetary Fund (IMF) said.

RISKS TO INFLATION. Core inflation and second-round effects are factors that should be monitored closely vis-a-vis the Philippines’ inflation rate, an executive of the International Monetary Fund (IMF) said on Friday (Oct. 28, 2022). However, domestic growth is seen to remain solid with a print of about 6.5 percent this year but is projected to slow down to 5 percent next year. (PNA file photo)

 

In a hybrid briefing on Friday for the release of the lender’s Regional Economic Outlook (REO), Shanaka Peiris, Division Chief of Regional Studies of the IMF’s Asia and Pacific Department, noted that the rate of price increases remains higher than the government’s 2- percent to 4 percent target since breaching the target band some months ago.

Peiris said the elevated inflation rate is among the factors for the continued hikes in the Bangko Sentral ng Pilipinas’ key policy rates, which he said is projected to increase further in the coming months.

“I don’t think we could predict the exact timing and how things will come but the degree of persistence of, I think, core inflation is a key thing to watch,” he said in reply to questions from the Philippine New Agency (PNA).

Monthly inflation surpassed the government’s target band since April when it posted an annual rate of 4.9 percent from the previous month’s 4 percent.

It took a breather in August when it decelerated to 6.3 percent but posted a big jump to 6.9 percent the following month, the highest since October 2018.

Average inflation in the first nine months this year stood at 5.1 percent.

Core inflation, which excludes volatile food and oil items, slowed to 4.5 percent in September from 4.6 percent from the previous month, bringing the nine-month average to 3 percent.

Peiris said second-round effects are also something to watch out for, referring to the effects of the elevated inflation rate on wages and transport fares.

Philippine monetary authorities said second-round effects are among the things they are monitoring, given the petitions for an increase in minimum fare.

“In the region, second-round effects are actually quite common from high commodity prices or even high headline inflation,” Peiris said.

Meanwhile, he said they continue to see strong domestic demand for fuel output for this year, with expansion seen at 6.5 percent.

Growth, as measured by gross domestic product (GDP), is seen to slow to 5 percent next year but recover and post a faster rate of 6 percent in 2024.

The REO Update said the projected slower output for next year is not unique to the Philippines but is also seen to affect Indonesia, Malaysia, Singapore, and Vietnam.

“This reflects weaker external demand, supply chain disruptions, a pivot to macro policy normalization to contain price pressures and manage risks, and tighter financial conditions,” the report said. (PNA)