Lower inflation a key to quieting business fears

PHILIPPINES - In Brief 04 May 2024 by Diwa Guinigundo

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By this time, many publicly-listed companies in the Philippines have held or about to hold their annual shareholders’ meeting to report on the previous year’s business performance. So far, the reports were more than encouraging with earnings beating the previous year’s post-pandemic record. Their reading of the macroeconomic environment this year is invariably one of cautious optimism. The financial sector appears to be most profitable, followed by selected consumer products and property development. Pronouncements by the heads of these conglomerates and big business groups are mostly qualified by the uncertainty of the credit markets considering that the BSP might keep to its “higher interest rates for longer” policy. The central bank has enough reason to keep monetary policy steady. Higher Inflation remains a big risk to corporate performance. Interest rates may be higher at this point, but without it, the risk is elevated inflation pulling back economic growth through its impact on consumer spending, public expenditure and investment. As we await the announcement of the April 2024 inflation next week, the broadsheet BusinessWorld poll of 16 analysts show that their median forecast stands at 4.1%, breaching the BSP’s 2-4% inflation target for 2024, but within the central bank’s own estimate of April’s inflation at 3.5-4.3%. We are surprised that the market continues to look at the baseline forecast of the central bank for 2024 at 3.8% when its risk-adjusted forecast already indicates a potential breach of the target at 4.0%. We are equally surprised that some of the polled economists still expected the April inflation at a low 3.5%, and at a high 4.5%. On one side, t...