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IMF executive: Beware of PH core inflation and second-round consequences

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According to an International Monetary Fund (IMF) executive, core inflation and second-round impacts are the main economic concerns in the Philippines.

Shanaka Peiris, Division Chief of Regional Studies of the IMF’s Asia and Pacific Department, noted that the rate of price increases remains higher than the government’s 2-percent to 4-percent target since breaching the target band some months ago during a hybrid briefing on Friday for the release of the lender’s Regional Economic Outlook (REO).

Peiris claimed that one of the causes of the ongoing increases in the key policy rates of the Bangko Sentral ng Pilipinas—which he predicted would continue in the months ahead—was the high inflation rate.

In response to inquiries from the Philippine New Agency, he stated, “I don’t think we could foresee the exact timing and how things will happen but the degree of persistence of, I think, core inflation is an important item to watch” (PNA).

Since April, when it increased from the previous month’s 4 percent annual rate to 4.9 percent, monthly inflation has been higher than the government’s goal range.

It slowed down to 6.3 percent in August before seeing a significant increase to 6.9 percent the following month, the most since October 2018.

Inflation was 5.1 percent on average over the first nine months of this year.

The nine-month average of core inflation, which does not include volatile food and energy prices, decreased to 4.5 percent in September from 4.6 percent in August.

Peiris warned against second-round consequences, which allude to how the high inflation rate may affect wages and transportation costs.

Given the requests for a rise in the minimum fare, the Philippine monetary authorities stated that second-round effects are among the items they are monitoring.

According to Peiris, “in the region, second-round effects from high commodity prices or even high headline inflation are really extremely prevalent.”

He also stated that they continue to anticipate high domestic demand for gasoline production this year, with growth projected to be 6.5 percent.

GDP growth is predicted to dip to 5% the next year before picking up again and reaching a stronger pace of 6% in 2024.

According to the REO Update, other countries besides just the Philippines are expected to experience weaker output in the coming year, including Indonesia, Malaysia, Singapore, and Vietnam.

The research stated that this was due to “weaker external demand, supply chain disruptions, a tilt to macro policy normalization to curb pricing pressures and manage risks, and tighter financial conditions.”


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