THE prolonged weakness of the peso may lead to higher business costs and increased prices for consumer goods, according to an official from the Philippine Retailers Association (PRA)-Cebu Chapter.
However, the strengthening of the US dollar against the Philippine peso also benefits dollar-earning sectors like tourism, business process management (BPM), export, and overseas Filipino workers (OFWs).
“We expect an increase in prices as most products and even raw materials are imported,” said Robert Go, spokesperson of the PRA-Cebu Chapter.
The cost of imported goods and services rises as the peso weakens, leading to higher prices for consumers. This can contribute to overall inflation, as the Philippines imports a substantial portion of its consumer goods, raw materials and fuel.
Inflation in May accelerated to 3.9 percent, a slight increase from the 3.8 percent rate in April.
According to Go, consumer goods in grocery stores are increasingly imported due to the shift of manufacturing to Thailand, Indonesia, and Vietnam. As a result, product prices have risen by at least five to 10 percent with each increase in the US Dollar exchange rate.
The Philippine peso touched the P58-level against the US dollar on May 21, 2024. This depreciation was influenced by several factors, including signals from the US Federal Reserve indicating a delay in cutting interest rates, which strengthened the dollar against many regional currencies. The peso’s closing rate on that day was P58.27.
Besides consumer goods, Go also said airfares may go up if the peso continues to depreciate, as airlines in the Philippines import fuel from overseas.
According to a report, Cebu Pacific, in particular, pays between 60 to 70 percent of its expenses in dollars, exposing its operations to cost pressures resulting from foreign exchange fluctuations.
‘Inflationary in nature’
Entrepreneur Steven Yu said the strengthening of the US Dollar has increased the cost of importation and is inflationary in nature.
“Since we are a net importer, there is an upward bias on prices of goods. However, the impact is not too evident because there is a current weakening of costs of commodities globally triggered by the slowdown of many economies,” said Yu.
On the other hand, Yu said the strengthening dollar is beneficial to overseas Filipino workers, the BPM sector, export, and tourism sectors.
“This will bring about an increase in purchasing power to the consumers,” Yu said.
“Cebu, in particular, is a BPM and tourism powerhouse. This will trigger business recovery and economic robustness to the industry and commerce sector. It will also trickle down to the many downstream micro, small and medium enterprises supporting the concerned sectors,” he explained.
A weaker peso can make the Philippines a more attractive destination for foreign tourists, as their dollars will have greater purchasing power. However, outbound tourism might decline as it becomes more expensive for Filipinos to travel abroad.
Overseas remittances, which are a significant source of foreign exchange for the country, become more valuable in local currency terms when the peso weakens. This can increase household income for families of OFWs.
Home furnishing exporter Pete Delantar considered the P58 against the US dollar exchange rate a tipping point for both importers and exporters.
“For exporters, there is a windfall profit. You have an extra income, however, it’s only temporary because inflation will catch up, especially with the prices of fuel because we import fuel. We are a net importer country, we are not an exporting country anymore. It’s not good for the economy,” said Delantar.
A weaker peso can make Philippine exports cheaper and more competitive in the global market. This could benefit sectors such as electronics, agriculture, and BPM. However, the benefit might be offset by higher costs of imported inputs and raw materials needed for production.
According to reports, Bangko Sentral ng Pilipinas Gov. Eli Remolona said that the central bank will intervene in the market as needed “to smoothen excessive volatility and restore order during periods of stress.”
“When do we intervene? We don’t intervene every day. We intervene when we have to and when we say we have to, it’s when the currency is under stress,” said Remolona, as quoted in a report. “Under stress means we find some dysfunction in the market. There’s maybe, when liquidity disappears and then we intervene to provide more liquidity.”
The Philippine peso closed at a low level of P58.79 on Monday, June 10. / KOC