July inflation accelerates to 4.4%

Headline inflation in July reached its highest rate in nine months, driven by higher price increases in housing, water, electricity, gas and other fuels, transport items, and food and non-alcoholic beverages, the Philippine Statistics Authority (PSA) reported.

Preliminary data from the agency showed the consumer price index grew by 4.4 percent year on year in July, accelerating from the 3.7 percent in June, but slower than 4.7 percent in the same period last year.

This is within the 4 to 4.8 percent forecast of the Bangko Sentral ng Pilipinas (BSP) for the month, however, it was higher than the 4 percent average inflation forecast in an Inquirer poll of 11 economists conducted last week.

Inflation print in July marked the fastest growth in nine months or since the 4.9 percent logged in October 2023.

This marked the first time that the inflation breached the central bank’s 2 to 4 percent target range for the year.

For the first seven months, inflation averaged 3.7percent, still lower from the 6.8 percent in July 2023.

Source: Inquirer

Philippines household consumption seen to accelerate

Household consumption is seen to accelerate this year amid easing inflation, Fitch Solutions’ unit BMI said.

“We hold a positive outlook for consumer spending in the Philippines in 2024 and 2025,” it said in its latest commentary.

“While household spending already recovered to the pre-COVID levels in 2022, the rate of increase slowed in 2023. For 2024, we expect an acceleration, driven mostly by easing inflationary pressures, a stable labor market and lower interest rates.”

BMI expects household spending to expand by 6.2% this year. Household consumption, which accounts for more than three-fourths of economic output, rose by 4.6% in the first quarter.

“Over 2025, household spending will hold steady, growing 5.9% year on year in real terms.”

BMI said that the downtrend in inflation and strong labor market will support private consumption.

“Easing inflation and a tight labor market will support spending, as real wage growth returns to positive territory, which will support purchasing power over the year.”

BMI expects inflation to settle at 3.2% this year, slightly below the central bank’s 3.3% full-year forecast.

For the first six months of the year, headline inflation averaged 3.5%.

However, BMI noted risks to this outlook, such as “prolonged inflation, lower remittances, and a weakening of the domestic economy.”

“Consumers still need to become used to higher than usual inflation in the short term. If nominal income growth does not keep pace with inflation, the purchasing power of consumers will deteriorate, which would be a drag to their spending.”

“Prolonged inflation, particularly in relation to food, will mean that consumers will have to increasingly allocate more of their disposable income towards meeting basic necessities.”

Geopolitical tensions, such as the Israel-Hamas conflict, may also impact inflation and interest rates, it added.

It also cited risks to remittance growth due to potential financial stress in global markets, such as the United States.

“Another risk is the strengthening of the peso, which could reduce the amount sent back by overseas workers in local currency terms,” BMI added.

Meanwhile, high levels of household debt may also dampen household spending, BMI said, as it affects disposable income of consumers.

“This is particularly true as debt servicing costs rise in response to increases in interest rates,” it said.

The COVID-19 pandemic changed household consumption patterns in the Philippines, BMI said.

“Due to mass unemployment, especially in the services sector, the country experienced a recession. Many households were forced to apply for credit and government aid in order to pay for essential items.”

Source: Business World

GDP growth picked up in Q2

The country’s economic growth likely accelerated in the second quarter due to robust government spending and easing inflation.

An Inquirer poll of 11 economists conducted last week yielded a median gross domestic product (GDP) growth estimate of 6 percent for the second quarter. If realized, this would be faster than the preliminary 5.7-percent growth recorded in the first three months and the 4.3 percent expansion logged in the same period a year ago.

This would bring the first half average GDP expansion to 5.9 percent, just short of the government’s 6 to 7 percent target for the year.

The Philippine Statistics Authority is set to release second quarter GDP data on Aug. 8.

Robert Dan Roces, chief economist at Security Bank, estimated that economic growth rose to 5.9 percent, driven by strong domestic demand.

This growth is reflected in the robust manufacturing sector, high employment, increased government spending and controlled inflation.

HSBC economist Aris Dacanay gave a 6.3-percent GDP growth forecast, mainly driven by improved government spending.

“In contrast to last year’s underspending, the utilization rate of the 2024 budget has significantly improved, leading to total government expenditure to rise 14.6 percent year-on-year in the first half of the year,” Dacanay said.

Strong labor market

Besides more efficient spending, service exports have grown rapidly, now outpacing overseas remittances, Dacanay added.

Dacanay further stressed that the country’s strong labor market has kept household spending resilient despite high inflation and interest rates.

For the first quarter, household spending—which accounts for more than 70 percent of economic output—rose by 4.6 percent, making it the slowest growth since the COVID-19 pandemic hit the country in 2020.

Meanwhile, Metropolitan Bank & Trust Co. chief economist Nicholas Antonio Mapa said that increased investment momentum was expected to boost GDP growth, and gave a second quarter GDP growth forecast of 6 percent.

“In the short term, investment growth should boost the economy through increased capital formation. It will also enhance overall productivity. These factors combined should help maintain the Philippines’ growth narrative and set the stage for even higher levels of economic expansion in the future,” Mapa said.

On the other hand, Pantheon Macroeconomics economist Miguel Chanco projected a 5.6-percent growth, slower than the first quarter’s rate. “On investment, the clouds have been darkening for some time, due to the still-high level of interest rates, falling construction permits and waning business confidence. In terms of government spending, activity from one quarter to the next can vary quite wildly, and this has been the case on a quarterly basis since early last year,” he said.

Moreover, Chanco believed that the main reason for reduced spending is that the government is still working to balance the budget after the heavy spending during the pandemic.

Finance Secretary Ralph Recto remained optimistic that growth will be “higher than the first [quarter]” attributing higher consumption, lower inflation, and public spending as the main drivers of growth.

Source: Inquirer