Philippine Economy is Weathering High Inflation
There is nothing good in surging inflation. When prices of basic items rise, it erodes the purchasing power of consumers. But I believe high prices are temporary—they will go down in the near future and restore the currency’s lost purchasing power.
Neither do I believe that we have a runaway inflation. The high inflation rate we saw in November, especially of food prices, is caused by weather disturbances that temporarily disrupted supply, the shock of transport fare hikes and the weak peso. Food prices will eventually settle down as more crop harvests come in. And judging from the global trends last week, crude prices are softening to near pre-Ukraine invasion levels.
Thus, I believe the inflation rate will slow down in the coming months as global oil and non-crude prices ease and the interest rate hikes of the Bangko Sentral ng Pilipinas work their way into the Philippine economy.
The high inflation rate, in reality, has failed to make dent on the country’s economic growth. Some of last week’s indicators show a solid and expanding Philippine economy. High prices are not altering our growth path.
The nation’s labor market, per the report of the Philippine Statistics Authority last week, returned to its pre-pandemic level. The unemployment rate declined to 4.5 percent in October from 7.4 percent a year ago. The figure was an improvement from 5 percent in September. The employment data translated to 2.24 million unemployed Filipinos, down by 1.26 million from the 3.50 million unemployed in October last year, and lower by 256,000 compared to the 2.50 million unemployed in September 2022.
Other encouraging numbers are the declining prices of oil in the world market and the peso’s continued recovery against the US currency. Dubai crude dropped to $75.12 per barrel on December 6, while the peso gained further against the dollar last Wednesday to close at 55.45. The peso fell to a record low of 59 against the greenback four times in October.
These positive trends point to a robust fourth-quarter economic performance. A more stable peso and the declining prices of crude in the world market are also a clear signal that the inflation rate will reach its peak sooner or later and start to decline.
Government’s intervention efforts to address the inflation scourge are helping. Measures to boost food production and lower the cost of bringing farm produce to the market will go a long way in our fight against inflation. Of note is the expansion of the Department of Agriculture’s Kadiwa Program, which seeks to link producers to consumers and provide a higher profit share for local farmers and offer consumers more affordable prices.
Meanwhile, another encouraging indicator that supports a strong economic expansion in the fourth quarter of the year is the performance of our manufacturing sector. It registered its highest average capacity utilization rate for the year at 72.4 percent in October. Per the report of the PSA, almost a fifth or 19.9 percent of companies operated at full capacity, while 40.4 percent operated at 70-percent to 80-percent capacity.
The World Bank is in agreement with our economic strides. It increased its 2022 gross domestic product growth forecast for the Philippines to 7.2 percent from a previous estimate of 6.5 percent, citing higher consumer demand amid the reopening of the economy.
The multilateral institution based this year’s forecast on the 7.7-percent growth recorded by the Philippines in the first three quarters. It noted the removal of remaining restrictions on people’s mobility and business operations and the recovery of incomes and jobs. The reopening benefitted the services sector while government spending on infrastructure stimulated the growth of the construction and industry sectors.
I believe the Philippines is handling the inflation rate problem well based on recent positive economic indicators and the endorsement of the World Bank. Otherwise, we will not have a growth story to tell this fourth quarter.