Consumer confidence seen boosted by stronger job market, retreating inflation

CONSUMERS are expected to have more purchasing power this year amid improved labor market conditions and easing inflation, First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said.

“Record high employment and all-time lows for total unemployed persons in December and inflation back to the Bangko Sentral ng Pilipinas (BSP) target should provide the necessary wherewithal to consumers to open their wallets in 2024, starting in the first quarter,” it said in its Market Call released over the weekend.

The unemployment rate fell to 4.3% in 2023, the Philippine Statistics Authority (PSA) reported, the lowest jobless rate in nearly two decades.

Headline inflation declined to 2.8% in January from 3.9% in December and 8.7% a year earlier. This was also the second straight month inflation was within the 2-4% target band.

Private consumption typically accounts for three-fourths of the economy. In 2023, household spending expanded by 5.6%, much slower than the 8.3% in 2022.

FMIC and UA&P said they expect inflation to average 3.1% in the first quarter, with full-year inflation to settle at 3.8%.

“Inflation will continue to slide into BSP’s target range as crude oil prices will trend slightly lower while imports and better harvests (in the second half) should limit rice price gains,” it added.

The BSP expects inflation to average 3.6% this year and 3.2% for 2025.

However, FMIC and UA&P noted that the El Niño phenomenon could derail the downtrend in inflation.

“We might see another blip if the El Niño phenomenon gets nasty,” it added.

Dry weather is expected to persist until May, according to latest estimates from the government weather service, known as PAGASA (Philippine Atmospheric, Geophysical and Astronomical Services Administration).

The report also noted that crude oil prices are not likely to stoke inflation.

“Moving forward, we don’t think oil prices will deter the downward slide of inflation to within BSP target, since US Energy Information Administration projects a downward trend of crude oil prices (WTI) from the overestimated $80 per barrel in February to $76.50 by December 2024 and $73.50 per barrel by December 2025,” it added. — Luisa Maria Jacinta C. Jocson