INFLATION could outpace economic growth this year, especially if no steps are taken to mitigate supply side constraints, according to local economists.
In a presentation at the ADR Stratbase Economic Outlook for 2023 virtual forum on Thursday, Ateneo de Manila University Department of Economics Chairperson Alvin P. Ang said inflation could remain elevated at above 7 percent this year if supply side issues are left unchecked.
Ang added that these efforts to address supply side issues should be trained on the agriculture sector. At business as usual, doubling the growth of the agriculture sector would take 66 years or 11 administrations.
“Interest rates are not really used to fight inflation basically because our inflation is supply driven. So it’s really more of an executive function rather than the monetary working on it. It’s complimentary, but it’s more a local domestic challenge of supply,” Ang said in his presentation.
In the same forum, Managing Director of eManagement for Business and Marketing Services, Jonathan Ravelas said he is concerned that the inflation expectations of Ang had basis, given that developments also lead him to believe that the risks point to his worst-case scenario.
Ravelas said his inflation scenario has a base case of 5.3 percent. The best-case scenario is for inflation to cool to 4.5 percent this year while the worst-case scenario could be 5.6 percent.
However, just like Ang, Ravelas has not adjusted his inflation forecasts to take into consideration the 8.7 percent posted in January. He said it was still too early to adjust.
Nonetheless, Ravelas told BusinessMirror in a phone interview that inflation would also be affected by what is happening in the jobs sector.
What could happen is what is called the Phillips Curve. This was created by New Zealand-born economist Bill Phillips in the 1950s and illustrated an inverse relationship between inflation and unemployment.
This meant that when inflation is high, unemployment is low and when inflation is low, unemployment is high. This assumes that when more people are employed, there is greater demand for goods, thus, higher prices; and when few are employed, demand is dampened and prices remain low.
“Habang bumababa yung unemployment mo, tataas din yung inflation. Ganyan nangyayari sa atin. Fourth quarter, maraming nagkatrabaho, so may pera ka. Dr. Ang actually explains it well. Nakita ko yung consumption. Ang question dyan, sino yung mag-gi-give way? The last number nung December medyo nawawalan na ng trabaho. So pwedeng pa-peak na yung inflation mo but these geopolitical tensions [could affect this],” Ravelas explained.
In his presentation, Ravelas said factors to watch out for are: geopolitical tensions such as the war in Ukraine, where peace may be “an elusive dream’; the middle kingdom trap of China which may affect its ability to access resources; and the possibility that China could attack or place a blockade on Taiwan.
Given these concerns, Ang said the economy could be hard pressed to squeeze growth, more so double its growth. He estimated that under a business-as-usual scenario, doubling the country’s GDP growth could take 11 years or at least two administrations.
Ang and Ravelas agree that the agriculture sector holds the key to growing this year and in the years to come. Ang said agriculture is one sector that could reduce inequality and create prosperity for a larger chunk of the population.
He noted that the disposable income of rich Filipinos is still 14 times the income of the poorest in society. As most of the country’s poor are in agriculture, it is imperative that agriculture be a focus for the country to narrow inequities.
Ensuring food security should also be the priority, Ravelas said, and it was a good thing that the President already mentioned this in his previous statements. He pushes for greater emphasis on availability, affordability, and accessibility of food.
Apart from agriculture, other sectors may also take years and decades to double. The Industry sector as a whole needs 12 years, but mining and quarrying may need 23 years.
It may also require at least 12 years to double the growth of the electricity, gas, and water as well as education industries. Slightly more or 13 years will be needed for manufacturing; and 14 years for the real estate and ownership of dwellings.
A little over a decade or 11 years are needed by the wholesale and retail; information and communication; and public administration and defense industries.
However, Ravelas pitches focusing on the big picture. This means, on increasing jobs as well as BPO and OFW spending; opening the retail sector to foreign brands; and a strong demand for office and retail space.
Ravelas considers tourism, gaming, manufacturing, and mining as the country’s best industries whose potentials need to be developed.
Opportunities this year are trained on infrastructure spending; better pandemic management; and revenge spending. He stressed the need to focus on actions and not words to grow the economy this year.
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