MANILA – The country’s inflation rate is seen slowing down to settle at midpoint of the government’s target range of 2 percent to 4 percent to boost private consumption spending, Fitch Solutions Macro Research said Friday.
“We are forecasting inflation to cool to 3.0 percent and 3.3 percent in 2019 and 2020, respectively, down from 5.2 percent recorded in 2018,” it said.
The economic think tank cited the 22-month low June inflation at 2.7 percent, compared with 3.2 percent in May. It noted that the Philippine peso has stabilized and is expected to reduce import-related inflationary pressures.
“As a result, at its May 14 policy meeting, the Bangko Sentral Ng Pilipinas (BSP) cuts its key policy rate by 25bps to 4.5 percent which marked a significant reversal in outlook for the BSP, having hiked aggressively through 2018 to stem rising inflation and a weakening peso,” it said.
Lower level of inflation, supported by strong labor market and growing remittances will support disposable incomes and, in turn boost, spending, Fitch Solutions said.
“Private consumption proved to be the key driver of economic growth, averaging 5.8 percent year-on-year growth, and we expect this trend to continue with growth of 6.0 percent and 5.0 percent projected for the whole of 2019 and 2020, respectively,” the think tank said.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said that easing inflation tend to increase incomes and the spending power of consumers, which accounts for 70 percent of the economy.
The decline in interest rates help lower borrowing or financing costs, which could ease price pressures and overall inflation, Ricafort noted.
“The inflationary pressures that weighed on household consumption through the first three quarters of 2018 have dissipated, while a strong labor market backdrop will also prove supportive of household confidence and subsequently, consumption growth,” Fitch Solutions said.
According to the Philippine Statistics Authority, the employment rate stood at 94.9 percent in April, up from 94.5 percent a year earlier.
Unemployment rate fell to 5.1 percent in April, down 5.5 percent from the same month last year.
“Strong…employment data, with unemployment rate hovering among the best levels and underemployment rate among lowest levels…to also fundamentally support continued growth in consumer incomes and consumer spending,” Ricafort said. (GMA News)
