Current inflation level not expected to curtail growth

MANILA — The current inflation level, which grew to 4.5 percent in April, is not expected to significantly impact the country’s economic growth in the near term, IHS Markit Chief Economist Rajiv Biswas said.

In an e-mail Monday, Biswas said gross domestic product (GDP) for the first quarter of the year is expected to grow by 7 percent and price pressures in this period are unlikely to hold back this economic growth. “GDP growth in Q1 2018 is expected to strengthen to 7 percent year-on-year, helped by a strong upturn in government infrastructure spending and robust consumer demand,” he said.

“Rising inflation pressures in Q1 have not yet impacted significantly on the near term growth outlook,” he added. The IHS Markit economist forecasted that full-year GDP will rise 6.6 percent, still driven by the Build Build Build Program, strong private consumption, and remittances from overseas Filipinos.

But Biswas noted that the Bangko Sentral ng Pilipinas (BSP) is expected to tighten monetary policy in its Monetary Board meeting this Thursday, after April inflation settled at 4.5 percent.

“With the headline CPI (consumer price index) now at 4.5 percent year-on-year April, well above the upper end of the BSP target range and the Philippines economy continuing to grow strongly in Q1 2018, this will put increasing pressure on the BSP to tighten monetary policy with a 25-basis point rate hike at its Monetary Board meeting in May,” said Biswas.

“Modest BSP tightening is not expected to be a significant brake on GDP growth momentum in 2018,” the economist said.

However, should Brent crude price breaches the USD75 per barrel, Biswas cited this as a key risk to the country’s positive economic outlook as this would further increase inflationary pressures and force the central bank to hike policy rates higher than what the market expects. “Higher oil prices would also result in widening trade deficit, which could increase the drag on GDP growth in second half of 2018 from net exports and also put downwards pressure on the peso,” he added.

“With exports growing at a sluggish pace and exports of electronics expected to moderate, the overall trade deficit is likely to widen, and net exports will act as a drag on the buoyant pace of expansion of domestic demand,” Biswas said.