Headline inflation rates in the Philippines
INFLATION surged in June to a fresh five-year high as it beat market and government estimates given for the month, leaving the door open for another policy interest rate hike. Read the full story.
Inflation surge spurs rate hike view
By Jochebed B. Gonzales, Senior Researcher
Melissa Luz T. Lopez, Senior Reporter
and Elijah Joseph C. Tubayan, Reporter
INFLATION surged in June to a fresh five-year high as it beat market and government estimates given for the month, leaving the door open for another policy interest rate hike.
Prices of widely used goods and services clocked in at 5.2% last month to mark another peak in at least five years, the Philippine Statistics Authority announced on Thursday.
The pace surged from May’s 4.6% and 2.5% in June 2017, maintaining a steady ascent for six straight months. June also saw the fourth straight month that inflation pierced the Bangko Sentral ng Pilipinas’ (BSP) 2-4% full-year 2018 target range.
June inflation pierced the 4.3-5.1% range estimated by the BSP’s Department of Economic Research, the 4.9% estimate of the Department of Finance and the 4.7% median of BusinessWorld’s poll.
Core inflation, which excludes volatile food and energy prices, picked up to 4.3% last month from May’s 3.6% and 2.1% in June 2017.
Year-to-date, headline inflation averaged 4.3%, compared to the BSP’s 4.5% forecast for the entire 2018.
The PSA attributed the acceleration primarily to the faster annual increases in the heavily weighted food and non-alcoholic beverages index (6.1% from 5.7% in May 2018); alcoholic beverages and tobacco (20.8% from 20.5%); transport (7.1% from 6.2%); housing, water, electricity, gas and other fuels (4.6% from three percent); education (four percent from 1.8%); furnishing, household equipment and routine maintenance of the house (three percent from 2.9%); and communication (0.4% from 0.3%).
The food-alone index picked up pace to 5.8% last month from May’s 5.5% and June 2017’s 3.1%.
“The higher-than-expected June inflation outcome is a setback,” BSP Governor Nestor A. Espenilla, Jr. told reporters in a mobile phone message.
“We will review and update our situational assessment and forecast inflation path. This will shape the strength and timing of our next monetary policy response to firmly anchor inflation expectations.”
Mr. Espenilla said the BSP “re-affirms its strong commitment to ensure that inflation returns to within the 2-4% target range as soon as possible.”
Socioeconomic Planning Secretary Ernesto M. Pernia said in a statement that the June turnout is “unwelcome news,” but noted that inflation so far is “just slightly” higher than the government’s target range for the year.
Still, Mr. Pernia, who heads the National Economic and Development Authority (NEDA) as director general, said that the latest inflation reading was “rather unexpected.”
“I myself was hoping that it would not breach five percent… We’re hoping that the peaking has happened already,” he said in a media briefing yesterday.
NEDA Undersecretary Rosemarie G. Edillon noted that pressures came chiefly from “imported inflation” due to rising global crude prices.
For Land Bank of the Philippines (LANDBANK) market economist Guian Angelo S. Dumalagan, inflation spiked on increasing oil prices and “seasonal factors.”
“An important seasonal factor is the start of classes, which likely caused an acceleration in the price of education. Likewise, weather disturbances possibly caused a similar inflationary effect on food items, particularly rice and corn,” Mr. Dumalagan said.
Union Bank of the Philippines (UnionBank) chief economist Ruben Carlo O. Asuncion shared this view, adding that a “persistently weak peso” is also a probable factor for the rising cost of imported products that include production inputs.
The BSP’s Monetary Board introduced back-to-back 25-basis point rate hikes in its May and June policy meetings to rein in future inflation.
For Emmanuel A. Leyco, economics professor at the Asian Institute of Management and former undersecretary at the Department of Social Welfare and Development, businesses and household sectors “will have to make adjustments since most have much lower inflation rate assumptions for 2018.”
“Combined with the depreciating peso, a higher inflation rate will mean much weaker purchasing power for the Filipino households,” he added.
OUTLOOK
Given the latest inflation pace, economists believe that price pressures now warrant another tightening move from the BSP during its Aug. 9 policy review.
“The high inflation point for June would likely require further monetary policy response as early as the August meeting. Real policy rate is deeper in the red indicating that a more aggressive economic policy response would be needed,” said Jose Mario I. Cuyegkeng, senior economist at ING Bank N.V. Manila, noting that real interest rates have fallen to -1.7% from -0.4% in January.
Observers have been pointing out that the BSP has been behind the curve as it kept interest rates low for too long. The central bank has kept its policy stance since September 2014 before its first rate hike in nearly four years on May 10.
“There may have been a little bit of a slip in timing in increasing the policy rates,” NEDA’s Mr. Pernia said.
Nevertheless, the NEDA chief remains hopeful that “inflation is kept at bay and will taper off by year end.”
“We expect inflation to peak in the third quarter and taper off by October, government needs to implement necessary measures, both short-term and long-term, to address the impact of inflation,” he said.
Analysts at Nomura noted that prices have picked up “across the board” and will keep rising faster until August or September, thus requiring BSP intervention.
“We believe inflation expectations are also likely to rise further, as evident in rising demand for wage increases. As such, we also now see some risk that BSP may deliver additional rate hikes this year, taking the policy rate above our 3.75% forecast,” said Nomura economists Euben Paracuelles and Charnon Boonnuch.
UnionBank’s Mr. Asuncion shared this expectation, saying: “I foresee another rate hike this August.”
“I have also inputted another possible rate hike by end of 2018 (50% chance). This is based on further volatility of the peso and a continuing elevation of inflation,” he said.
“[T]his may not be the peak, but we may see a waning momentum moving forward. I see second-round effects weighing down further on price levels in the coming months.”
At least three regions, so far, have approved wage hike petitions in the face of surging inflation, while regulators last Wednesday gave provisional approval for a P1 hike in jeepney fare to P9 for the first four kilometers in Metro Manila, Central Luzon and the Cavite-Laguna-Batangas-Rizal-Quezon region.
For Rajiv Biswas, chief economist for Asia-Pacific at IHS Markit, the BSP is “facing a perfect storm of pressures to hike policy rates further” as a result of rising inflation as well as the impact of the widening current account deficit and rising US interest rates that have pressured the peso to weaken.
For LANDBANK’s Mr. Dumalagan, however, the BSP may first have to “spot signs of second-round effects” when the next inflation report is released, a case he described as a “game-changer as far as monetary policy is concerned.”
“While June 2018’s strong inflation figure increases the chances of another BSP rate hike next month, it certainly does not guarantee of more tightening moves from the BSP amid views that this year’s elevated inflation is temporary,” Mr. Dumalagan said.
“Furthermore, the next action of the BSP might also be hinged on how local financial markets react to developments here and abroad. Higher volatility domestically could prompt further action from the BSP.”
Trade tensions starting to affect global economy
GENEVA — Trade barriers being erected by major economies could jeopardize the global economic recovery and their effects are already starting to show, the World Trade Organization (WTO) said on Wednesday in a report on trade restrictions among G20 nations.
“This continued escalation poses a serious threat to growth and recovery in all countries, and we are beginning to see this reflected in some forward-looking indicators,” WTO Director General Roberto Azevedo said in a statement.
He did not elaborate, but in May the WTO’s quarterly trade outlook indicator suggested trade would grow slower in the second quarter than in the first.
One component of its composite forward-looking indicator is international air freight data from the International Transport Association (IATA), which issued its figures for May on Wednesday.
IATA said air cargo demand was expected to grow by “a modest 4.0%” in 2018, less than the 4.5% foreseen in December. “Headwinds are strengthening with growing friction among governments on trade. We still expect demand to grow, but those expectations are dampened with each new tariff introduced,” IATA Director General Alexandre de Juniac said in a statement.
The WTO found that G20 countries introduced 39 new trade restrictions between mid-October last year and mid-May this year, double the rate in the previous period, affecting trade in iron and steel, plastics and vehicles. “The marked increase in new trade restrictive measures among G20 economies should be of real concern to the international community,” Mr. Azevedo said, adding that more restrictions had been put in place in the weeks after the period under review ended.
The WTO report did not name any particular country, but since the start of the year US President Donald Trump has launched a series of tariffs to punish what he sees as unfair trade, by allies and economic rivals alike. “At a juncture where the global economy is finally beginning to generate sustained economic momentum following the global financial crisis, the uncertainty created by a proliferation of trade restrictive actions could place economic recovery in jeopardy,” the WTO report said, adding that the world trading system was built to resolve such problems but the escalating tensions were a threat to the system itself, and G20 economies needed to use all means at their disposal to de-escalate the situation and promote further trade recovery. — Reuters
Factory output growth eases but remains robust in May
By Mark T. Amoguis, Researcher
THE COUNTRY’S factory production continued to expand by double-digit pace for the fifth straight month in May, though at a slower clip than in the preceding month, the Philippine Statistics Authority (PSA) reported on Thursday.
Preliminary results of the PSA’s Monthly Integrated Survey of Selected Industries showed that factory output — as measured by volume of production — went up by 19.8% annually in May.
This was a reversal from the revised 0.6% decline in the same month last year albeit slower than the also-revised 29% uptick logged in April.
The May figure marked the fifth straight month of double-digit growth. On the average, factory output volume has grown 21% so far this year, faster than the 7.3% recorded in 2017’s comparable five months.
The latest result roughly jibed with IHS Markit’s seasonally adjusted Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI), which bared a score of 53.7 in May from 52.7 in April. A PMI reading above 50 suggests improvement in business conditions, while a score below signals deterioration.
Average capacity utilization, which is the extent by which industry resources are used in the production of goods, was estimated at 84.2% with 12 of the 20 sectors registering capacity utilization rates of at least 80%.
The National Economic and Development Authority (NEDA), in a statement, attributed May’s production growth to food manufacturing, petroleum products, construction-related manufactures, export-oriented products and transport equipment.
Driving growth in manufacturing were increases in the production of printing (117.8%), petroleum products (33.3%), food manufacturing (32.5%), miscellaneous manufactures (19.2%), textiles (18.8%), electrical machinery (17.4%), as well as rubber and plastic products (12.6%).
Michael L. Ricafort, economist at the Rizal Commercial Banking Corp. (RCBC), said May’s volume of production growth “may be partly due to the low-base/denominator effects.”
“The pickup in manufacturing may be also attributed to the increase in household incomes and spending power since January 2018 when individual income tax rates were reduced under the TRAIN (Tax Reform for Acceleration and Inclusion) Law and resulted to higher purchasing power on consumers,” he said.
He also cited the real estate and construction boom, record-high foreign direct investments in recent years, and uptake of electronic exports growth as factors that fueled May’s production surge.
“The boom in both real estate and construction, as well as the increase in government spending especially on infrastructure… may have benefitted allied manufacturing industries that are related to real estate and construction,” he said.
Angelo B. Taningco, economist at Security Bank Corp., said that the double-digit expansion seen by manufacturing “may have been motivated by strong domestic demand for manufactured items amid rising product prices.”
OUTLOOK
“Higher demand due to school enrollment and harvest periods, expansion of businesses and new product lines, and ongoing rollout of public infrastructure projects are anticipated to further increase manufacturing production,” Socioeconomic Planning Secretary Ernesto M. Pernia was quoted in NEDA’s statement as saying.
Meanwhile, analysts said that the continued growth of the manufacturing sector will further contribute to the economy’s growth story in the second quarter.
“Faster growth in manufacturing/factory production would continue to be a major contributor to the pickup in the Philippine economic growth in Q2 2018, similar to the increased contribution of the broader industry sector to Philippine economic growth as seen in the recent quarters,” RCBC’s Mr. Ricafort said.
Security Bank’s Mr. Taningco agreed: “Q2 GDP (gross domestic product) will benefit from the strong performance of the manufacturing sector, which is a key growth contributor to national output.”
Historically, industry sector contributes around 35% to the country’s GDP, while its subsector, manufacturing, accounts for about 25%.
Economic managers have said they expect GDP growth to clock in at about seven percent when the PSA reports official data on Aug. 9, compared to the first quarter’s 6.8% and the government’s 7-8% full-year 2018 target.
Analysts said that the manufacturing sector’s expansion will be sustained in the coming months amid strong domestic investment.
Security Bank’s Mr. Taningco believes that “manufacturing will likely sustain its double-digit output growth for the rest of the year.”
“This will be on the back of buoyant domestic investment that spurs demand for manufactured items.”
RCBC’s Mr. Ricafort concurred, but warned of risks that could dampen the sector’s growth such as increasing prices of oil and other global commodities and the trade spat between the United States on the one hand and China, the European Union and the US’ other western partners on the other “that could slow down global trade and overall global economic growth.”
Monthly integrated survey of selected industries
THE COUNTRY’S factory production continued to expand by double-digit pace for the fifth straight month in May, though at a slower clip than in the preceding month, the Philippine Statistics Authority (PSA) reported on Thursday. Read the full story.
Care services seen generating up to 475M jobs by 2030 — ILO
THE care services industry could produce up to 475 million jobs by 2030, a new report by the International Labor Organization (ILO) said.
“Increasing investment in the care economy in order to meet SDG (Sustainable Development Goals) by 2030 has the potential to generate a total of 475 million job[s],” the ILO said in its report “Care work and care jobs for the future of decent work.”
The 475 million estimate is ILO’s high-end projection, which assumes that care services expand in order to meet SDG requirements by 2030. The high estimate compares with 358 million jobs in the ILO’s status-quo scenario for 2030, which assumes that care services develop based on current and constant standards and conditions.
The status quo scenario “includes 94 and 95 million care workers and 29 and 30 million non-care workers in education and health and social work, respectively. In addition, 110 million jobs are generated in other sectors (indirect jobs),” ILO said.
The report surveys 45 countries representing nearly 60% of the global population and labor force and 85% of global GDP.
The ILO found that increasing investment is needed even to achieve the status-quo scenario. If investment does not exceed six percentage points of global GDP by 2030, “deficits in coverage will increase and the working conditions of care workers will deteriorate,” it said.
The expected public and private expenditure for the status-quo scenario is $14.9 trillion, corresponding to 14.9% of GDP by 2030.
“This increase is driven by population growth and, primarily, demographic transformation, particularly increasing health and long-term care costs,” ILO reported.
Public and private expenditure to achieve the high-end scenario is $18.4 trillion, which would correspond to 18.3% of the countries’ projected GDPs by 2030.
“Of this additional spending, 1.3 percentage points are due to additional expenditure on education, 1 percentage point is due to additional expenditure on health and 1.2 percentage points to expenditure on long-term care for older persons,” ILO added. — Gillian M. Cortez