WANING pent-up demand, high domestic inflation and rising interest rates are among the key economic challenges that the Philippines faces this year, according to the National Economic and Development Authority (Neda).
In a virtual roundtable discussion with the Financial Executives Institute of the Philippines (FINEX) on Wednesday, Neda chief and Socioeconomic Planning Secretary Arsenio M. Balisacan said efforts to temper food and energy prices are considered “urgent imperatives” to sustain economic growth.
A huge 70 percent of the country’s GDP is accounted for by consumption, making the Philippine economy a consumption-driven one; thus, one vulnerable to inflation-induced pressure. Balisacan said efforts to keep prices low would be the key to keeping the economy afloat. “Tempering food and energy price increases is an urgent imperative to ensure the sustainability of consumption growth and, perhaps more importantly, protect the welfare of the poor and vulnerable whose consumption baskets are disproportionately constituted by food,” Balisacan said.
However, Balisacan admitted that the careful balancing act of ensuring sufficient supply and a healthy demand for various products is difficult if there are many groups making opposing claims.
“The inflation we are seeing is largely domestic as opposed to the pandemic when that inflation is largely imported amd we see that its not really the excess demand that is creating that push but the supply, the bottlenecks in the supply chain; that is one but there are also trade and policy issues,” he added.
Balisacan said this is the basis for creating the Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO). The committee’s creation was approved by the President last March 7 and it is expected to draft measures to keep food and energy inflation at bay.
The IAC, he explained, is tasked to monitor the drivers of inflation, collect data on supply and demand conditions, and submit reports and timely recommendations to the President to ensure that the government addresses food and energy constraints.
Balisacan said the committee’s member agencies are already preparing for the analytical work it will conduct to better guide policies moving forward.
“The data is clear—inflation from food and non-alcoholic beverages contributes nearly half to overall inflation. Inflation in these essentials, combined with inflation in other items such as housing, water, electricity, gas, and other fuels and transport, contributes nearly 80 percent to overall inflation,” Balisacan said.
Earlier, local economists said high commodity prices may continue despite the slowdown in inflation in February 2023, according to local economists.
The Philippine Statistics Authority (PSA) said inflation reached 8.6 percent in February 2023. Inflation was at 8.7 percent in January and at 3 percent in February 2023.
The PSA also said the poorest Filipinos experienced a 9.7-percent inflation rate in February, higher than the inflation seen by all Filipino households.
This is the fourth consecutive month when inflation for the Bottom 30 percent of households was above 9 percent.
However, the month-on-month data showed the rise in inflation was flat since inflation for the poorest households was also at 9.7 percent in January.
University of the Philippines School of Economics head of research Renato E. Reside Jr. told BusinessMirror that core inflation is the indicator to watch as it reached 7.8 percent in February. The PSA said this is the highest since March 1999 when it was at 8.1 percent.
Core inflation measures inflation for commodities that are not volatile and excludes certain food and energy items, according to Reside. The movements also lag those in prices of energy and food.
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