Inflation problem for next admin

INFLATION will be a pressing problem for whoever wins the Philippine presidency, Moody’s Analytics said on Monday.

Record debt levels to be inherited from the outgoing Duterte administration, it added, will hamper any fiscal response to rising prices.

“The incoming president will need to treat inflation as a top economic priority,” Moody’s Analytics said in a report.

“Inflation management has become a key policy point. Since early 2022, household discretionary income has come under threat from higher prices for staples,” it added.

Higher food and transport prices pushed inflation to a three-year high of 4.9 percent in April. Moody’s Analytics noted that a similar situation occurred in 2018 when inflation hit 5.2 percent, which subsequently dampened economic growth.

While the Bangko Sentral ng Pilipinas (BSP) hiked policy rates by up to 175 basis points in response, “inflation didn’t significantly cool until 2019,” it added.

The current rise in prices has been blamed on worsening supply disruptions caused by Covid-19 lockdowns in China and Russia’s invasion of Ukraine.

Leading presidential candidates Ferdinand Marcos Jr. and Maria Leonor “Leni” Robredo have both floated fiscal support as a means of addressing inflation. In particular, Marcos raised the possibility of a fuel subsidy while Robredo suggested the implementation of targeted social aid for the poor.

“In an effort to address poverty, Robredo has also promoted a job scheme and housing program. Marcos has suggested the government step up investment in agriculture as a way to create jobs,” Moody’s Analytics said.

It noted, however, that the Philippines might not have the financial capacity to provide fiscal support, pointing out that the country’s debt-to-gross domestic product (GDP) ratio already exceeded 60 percent last year due to the heavy borrowing to fund the pandemic response.

“The limited fiscal room has the new administration’s hands tied when it comes to navigating price hikes,” Moody’s Analytics said.

Because of this, the economic research firm believes the BSP will do the heavy lifting to manage inflation.

“A first-quarter GDP growth reading above 6 percent year on year will increase the odds of a rate hike in June to 60 percent,” Moody’s Analytics.

Unofficial results of Monday’s national elections will be released in the next few days. The winner will take office at noon on June 30, 2022 and serve a single six-year term.

First-quarter growth data, meanwhile, will be announced this Thursday.