PHL inflation hits 32-month high at 4.9% in August, economic recovery continues

MANILA – Rate of price increases accelerated to its fastest since January 2019 at 4.9 percent last month but the Bangko Sentral ng Pilipinas (BSP) maintains that inflation outlook remains broadly balanced and expects within-target level by end-2021.

BSP Governor Benjamin Diokno, said the August 2021 inflation rate is within the central bank’s 4.1 to 4.9 percent forecast range for last month and is in line with the central bank’s “assessment that inflation could settle close to the high end of the target range in the near term before decelerating back to within the target range by year-end.”

“The risks to the inflation outlook remain broadly balanced over the policy horizon,” he said.

He traced the upside risks to inflation and aggregate demand to “the uptick in international commodity prices due to supply-chain bottlenecks and the recovery in global demand.”

He, however, said these factors are seen to be countered by “the emergence of new coronavirus variants” since this factor leads to “stricter lockdown measures and delayed reopening of the economy.”

Inflation rose from last July’s 4 percent due mainly to increases in the heavily-weighted food and alcoholic beverages index.

This brought the eight-month average inflation to 4.425 percent, which is above the government’s 2 to 4 percent target band. The year-ago inflation rate is at 2.4 percent.

Diokno said the inflation rate for 2022 to 2023 “will likely fall towards the midpoint of the target, supported by the continued and timely implementation of non-monetary measures and reforms to address directly supply-side pressures on key food items.”

“Looking ahead, the BSP stands ready to maintain its accommodative monetary stance for as long as necessary to support the economy’s sustained recovery to the extent that the inflation outlook would allow,” he added.

Diokno, at the same time, said the Philippine economy’s recovery continues to face challenges but improvement in the unemployment rate makes growth prospects promising.

Diokno said results of the July 2021 Labor Force Survey show signs of economic recovery given the decrease in the unemployment rate to its lowest since the pandemic hit, although challenges remain as indicated by the decline in the labor force participation rate and the rise in underemployment rate.

“With the government’s accelerated deployment of vaccines, aggressive infrastructure development, and continued push for vital economic reforms, the Philippines’ medium- and long-term growth prospects remain promising,” he said.

On Tuesday, the Philippine Statistics Authority (PSA) reported that the unemployment rate went down to 6.9 percent in July from 7.7 percent in the previous month.

However, the labor force participation rate also declined to 59.8 percent in July from 65 percent in June, resulting in a net job loss of 3.4 million from June to July, which was traced to concerns over the coronavirus disease 2019 (Covid-19).

The underemployment rate also rose to 20.9 percent in July from the previous month’s 14.2 percent, primarily due to an increase in the underemployment rates in areas outside the National Capital Region (NCR).

Diokno dubbed the drop in labor force participation rate and the uptick in underemployment rate as short-term challenges to the recovery process.

He said the central bank has implemented measures to help lift the economy from the impact of the pandemic and these include the reduction in the BSP’s key policy rates by a total of 200 basis points to a record low of 2 percent for the overnight reverse repurchase (RRP) facility rate and a cut in the banks’ reserve requirement ratio (RRR) by as much as 200 basis points.

Diokno said the BSP’s total liquidity infusion in the financial system to date amounts to about P2.2 trillion.