The new round of wage and transport fare increases will add to price pressures that could further elevate inflation in September for the Philippines, Moody’s Analytics said in its Weekly Highlights.
“Price pressures are expected to broaden after the government approved hikes in the minimum wage and transport fares,” Moody’s said, echoing the statement of the Bangko Sentral ng Pilipinas last week after increasing its overnight borrowing rate by 50 basis points to 4.25 percent.
In addition, the research unit of Moody’s said the rise in core inflation over the last few months indicates that demand-side pressure is building.
“Added to that, extreme weather is a risk factor that may impact food prices. BSP upwardly revised its 2022 and 2023 inflation forecasts to 5.6 percent and 4.1 percent, respectively,” it said.
Rates on uptrend
The BSP raised the overnight reverse repo rate by 50 basis points at its September meeting, and this followed the Fed hiking its key policy rate by 75 basis points.
According to Moody’s Analytics, the above-target inflation keeps the door open for BSP to continue with rate hikes. The central bank will also be pressured to move in tandem with the Fed to support the peso. We expect BSP to deliver rate hikes at its November and December meetings,” it said.
But BSP Governor Felipe Medalla insisted the rate increase is still “accommodative,” adding that achieving a target-consistent path of inflation is “of great importance to us.” “Respectable growth is still possible under these terms, but price stability, one of our pillars, is the primary concern for the BSP.”
The weakening Philippine peso is a vital issue for BSP as the domestic currency has slipped more than 10 percent year to date against the greenback, making it one of the worst performing emerging market currencies. A weaker peso has put greater pressure on imported inflation and seen the trade deficit widen to record levels in recent months.
The peso exchange rate went down for the fourth straight day on Friday, settling at a new record low of P58.75 against the US dollar.
Over the weekend, economist-lawmaker Joey Salceda warned that between the poor and the wealthy households, the lower-income consumers would be more affected by the weak performance of the Philippine peso against the United States dollar.