Economists: No stagflation yet, but higher prices of goods to linger

MANILA, Philippines—Despite an inflation spike in January and fears of the recession wrapping across the first quarter of 2021, the Philippines is nowhere close to a dreaded stagflation, or a mix of excessive inflation and GDP contraction, whilst prices had been anticipated to rise faster all year long, in accordance to economists on Tuesday (Feb. 9).

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

The charge of enhance in prices of fundamental commodities jumped to a two-year excessive of 4.2 % final month, already past the federal government’s 2 to 4 % goal vary, due to costly meals, particularly pork and greens.

“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 mentioned.

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

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

“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,” Cochrane added.

Cochrane additionally identified that the unemployment charge already eased from double-digit highs on the peak of the longest and most stringent COVID-19 lockdown within the area. The jobless charge averaged a 15-year excessive of 10.4 % in 2020.

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

Cochrane famous that, excluding risky goods reminiscent of meals and oil merchandise, core inflation was regular at 3.4 % in January, simply barely quicker than the three.3 % per thirty days in addition to a yr in the past.

“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,” Cochrane mentioned.

“But current price increases are minimal for basic everyday food items. For example, the price index for rice is reported up 0.1 percent over the year in January, the same as December. For milk, cheese and eggs the rate is 1.7 percent, also unchanged,” Cochrane mentioned.

“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.

But in a separate analysis observe, Deutsche Bank Research chief economist Michael Spencer mentioned he anticipated 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],” mentioned 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 mentioned.

“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.

While Spencer anticipated the Bangko Sentral ng Pilipinas (BSP) to depart the coverage charge unchanged at its assembly on Thursday (Feb. 11), he mentioned “depending how far inflation rises above target and for how long, the rate hikes that we currently expect will begin in the second quarter of next year might be brought forward.”

Metrobank analysis analyst Pauline Revillas additionally believed that the policymaking Monetary Board will maintain key rates of interest regular throughout its first assembly on the financial coverage 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 mentioned in a report.


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