TOP officials anticipate that consumer spending and investments will remain strong in the coming months, driven by the recent decline in August inflation.
The Philippines’ inflation rate further slowed down at 3.3 percent in August 2024, a decrease that is primarily influenced by the downtrend in food inflation, the National Economic and Development Authority (Neda) said Thursday, Sept. 5, 2024.
In a statement, Neda said the country’s inflation calmed to 3.3 percent in August from 4.4 percent in July 2024.
It said the decline brought the average inflation rate to 3.6 percent, which is still within the government’s target range of two to four percent and consistent with other Asean countries, which have also managed their inflation rates within their target ranges, such as Indonesia at 2.6 percent (with a target of 1.5 to 3.5 percent) and Vietnam at 4.4 percent (within a target range of four to 4.5 percent).
The August inflation is also within the BSP’s forecast range of 3.2 to four percent.
“The latest inflation outturn is consistent with the BSP’s latest assessment that inflation will revert back to the target range in August after the temporary uptick observed in July due to negative base effects and the easing of supply pressures for key food items, particularly rice,” the BSP said.
The central bank added that the implementation of the rice tariff reduction will help in easing inflation in the coming months.
According to Finance Secretary Ralph Recto, “the sustained drop in inflation will boost our household consumption for the rest of the year as well as encourage more investments, particularly as borrowing costs decrease.”
Slowdown in food inflation
The Neda noted the decrease in food inflation, which significantly went slower to 4.2 percent from 6.7 percent during the month prior.
It said the decline in food inflation is largely attributed to rice inflation that is impacted by the reduced import tariffs, which decreased to 14.7 percent from 20.9 percent in the previous month.
“The sustained easing of inflation will support growth in household consumption, which elevated prices have long suppressed. Low-income households will benefit from the decline in food inflation, as food constitutes more than half (51.4 percent) of the consumption of the bottom 30 percent of households,” Neda Secretary Arsenio Balisacan said.
“Moreover, as businesses have identified persistent inflationary pressure as a significant concern, the recent stability and moderation in inflation will encourage investments, especially as borrowing costs are declining. Most importantly, the appetite for business expansion will improve as consumer spending increases,” he added.
Sought for comment, Steven Yu, former president of the Mandaue Chamber of Commerce and Industry, said the August inflation print signals that “the monetary policy is clearly ripe for further loosening to revive our economy which is showing signs of early stages of recession.”
“With further interest rate cuts before year-end, we will reverse the downward trajectory of our economy. Businesses will be encouraged to boost investments and job generation will ensue thereby helping improve consumer purchasing power. With lower inflation, lower interest rates, and improved job opportunities, the consumer class clearly wins,” said Yu.
He hoped that this scenario would be sustained to help the country attain upper-middle-income status and lower overall poverty levels.
The Philippines targets to hit upper-middle income economy status by 2025, banking on the economic growth target of six to seven percent. However, the World Bank said the country will likely graduate to that status later, maybe two to three years, from its set target.
La Niña impact
Meanwhile, Balisacan said there could be potential inflation pressures expected to emerge from higher electricity rates and above-normal weather disturbances.
But he assured that the government is prepared to address these pressures to ensure stable inflation, particularly in combatting the effects of the La Niña phenomenon by imposing improvements in early warning systems, the utilization of communication systems to issue warnings about dam openings, measures to address the potential accelerated speed of livestock diseases and greater involvement of local government units in information dissemination.
Balisacan said there is an allocation of P15 billion by the National Government for national risk reduction in 2024.
He said the Department of Agriculture (DA) is also working to expand the Kadiwa ng Pangulo program in the Visayas and Mindanao to enhance people’s access to affordable agricultural products.
“To promote greater reliability and more affordable electricity, the Energy Regulatory Commission (ERC) is urged to expedite the full implementation of the lower retail competition and open access threshold. The ERC is considering reducing the threshold from 500 kilowatts (kW) to 100 kW, which would enable more electricity end-users to participate in the program,” Balisacan said.
“The government will continue to implement measures to reduce further inflationary pressures, including enhancing agricultural productivity, expanding logistics infrastructure, and ensuring the efficient delivery of social services. These efforts are crucial not only for stabilizing prices but also for ensuring that economic growth translates into tangible improvements in the lives of all Filipinos,” he added. / TPM / KOC / SUNSTAR PHILIPPINES