The inflation crisis and currency weakness must be enough to focus Philippine President Rodrigo Duterte’s attention on his nation’s economic problems. The government stays optimistic, nevertheless, with Socio-economic Planning Secretary Ernesto Pernia predicting inflation will return to the federal government’s goal of 2-4% “early next yr.”
Inflation within the Philippines rose for a ninth straight month in September, but is prone to have hit a nine-year high of 6.7 percent and can start falling sharply from October, Pernia said South China Morning Fasting on the sidelines of the IMF and World Bank summit in Bali.
He predicts that a drop in inflation in October will likely keep Philippine central bank Bangko Sentral ng Philipinas (BSP) from raising rates of interest at its next meeting in November. The BSP has raised rates of interest at each of its last 4 meetings by a complete of 1.5%.
Pernia blamed food prices, especially the costs of basic products corresponding to rice, chicken, fish and vegetables, for the sharp acceleration in inflation this yr. The government has already taken steps to handle the problem by opening up imports, he said.
“Now anyone can import [food]there is no need for a license,” he said, predicting that imports would “flood” the market and lower inflation.
Calls to extend rice imports appeared already in the primary quarter of 2017, when supply began to say no. In response, Duterte last April fired a cupboard undersecretary who had pushed for more rice purchases. As supplies of staple grains dwindle, prices hit record highs this yr, prompting Duterte to finally approve more imports.
It will take time to reverse the view that the federal government has done a poor job of managing inflation
“We are aware of how much our Filipinos are feeling the impact of rising commodity prices, which is why the government has already taken steps to address it,” presidential spokesman Harry Roque said over the weekend, citing a series of additional measures. Duterte signed the contract in the previous few weeks. “We hope that these actions will help reduce the prices of goods in local markets.”
A Social Weather Stations survey released Wednesday showed that 52 percent of Filipino families now consider themselves poor, 10 points higher than in March and the very best since December 2014.
This could hurt President Duterte as Filipino voters sit up for the May midterm elections, when half of the Senate and all seats within the 297-member House of Representatives will likely be up for re-election, disrupting his legislative agenda for the rest of his six-year term.
“The inflation issue has really reared its head here,” Bob Herrera-Lim, managing director of Teneo Strategy in Manila, wrote in an email. “It will take time to reverse the view that the government has done a poor job of managing inflation and that it has not done enough.”
However, Pernia’s explanation of the explanation for inflation contradicted that of the BSP.
The BSP said the federal government’s controversial Tax Reform for Acceleration and Inclusion (TRAIN) Act, which got here into force on January 1, was also liable for the upper prices. This law reduced personal tax rates, and a discount in corporate tax rates will occur if the federal government adopts further laws by the top of the yr. But TRAIN also raised taxes on goods corresponding to petroleum, in addition to on a spread of consumer products including tobacco, alcohol and sugary drinks. The government has come under pressure from its political allies and large business to suspend excise taxes, but has up to now resisted.
Secretary Pernia also countered claims that the peso’s weakness is on account of the weakness of the economy.
“This is a completely wrong assumption,” he said, arguing that the peso’s weakness is on account of the strength of the U.S. dollar, largely on account of Federal Reserve rate of interest increases.
Pernia also denied that the TRAIN tax law contributed to the peso’s decline. TRAIN, he argued, gave the federal government the liberty to pursue a “Build, Build, Build” program that may profit the country in the long term.
The minister avoided questions on how the peso will behave if the Fed, as expected, continues to lift rates of interest this yr and next. He suggested that the BSP would consider adjusting its policies if crucial, but stressed that the central bank was independent and would choose any appropriate motion by itself.
According to Jayeel Cornelio, director of the event studies program at Ateneo de Manila University, economic problems could possibly be particularly damaging to the president’s political fortunes.
“Given that many individuals within the Philippines live below the poverty line, the sharp rise in inflation has enormous consequences for the recognition of a person who got here to power on a promise to face with the weak and defenseless,” Cornelio said.
Additional reporting by Bloomberg
