Expect a BSP preemptive move...

PHILIPPINES - In Brief 26 Oct 2023 by Diwa Guinigundo

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Issue: Monetary policy does not have to act because Philippines inflation is supply driven We are bothered by the latest statement of one of the economic managers of the Philippine government, National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan. He was quoted in the broadsheets as having argued, “I think the source of inflation is the supply side and not demand side that requires a monetary policy cure.” The logical conclusion of this statement is that for him, raising interest rates further “can hurt” the economy and consumers. Data show inflation is indeed driven by supply shocks To be sure, headline inflation has been rising in the Philippines for the last two months: from 4.7% in July to 5.3% in August and 6.1% in September. Headline inflation averaged 6.6% for the first nine months of 2023. Secretary Balisacan was correct in that the three major contributors to higher inflation were food and non-alcoholic beverages, restaurants and accommodation services, as well as utilities, all reflecting supply pressures. Elevated core inflation also shows demand pressures at work But the Philippine Statistics Authority also reports the trend in core inflation, an indicator of the underlying movement in consumer prices as it excludes the effect of temporary disturbances and shocks that drive prices to surge or drop, independent of monetary policy. Core inflation is a good proxy to demand pressures in the economy. Unfortunately, while core inflation inched down from 6.1% in August to 5.9% in September, year-ago core inflation was much lower at 5.0%. First nine-month average core inflation stood at 7.2%, even higher than the average headline inflation....