Consumers may get some relief soon from higher prices as the Department of Finance (DOF) has seen signs inflation may have peaked in July on the back of decelerating global crude prices.
In a statement on Wednesday, Aug. 17, Finance Secretary Benjamin E. Diokno said the country could have reached peak inflation at 6.4 percent last month, and would fall back further in coming months.
“Inflation hit 6.4 percent last month but I bet this has already peaked. As you know oil prices have started to go down. So, we expect inflation to start to decelerate towards the end of the year,” Diokno said.
Headline inflation, which measures the rate of increase in consumer prices, rose at much faster pace in July from 6.1 percent in June. It also quickened further from 3.7 percent in the same month last year.
In the first seven-months, inflation averaged at 4.7 percent, within the government’s forecast of 4.5 percent to 5.5 percent for the year, but above the target band of 2.0 percent to 4.0 percent.
“We are confident that inflation will be within our target range of 2.0 percent to 4.0 percent next year,” the finance chief said.
Diokno also said the inflation rate will not have any severe impact on the Marcos administration’s gross domestic product (GDP) growth rate targets.
He echoed Socioeconomic Planning Secretary Arsenio Balisacan, who had said that the country’s GDP has to grow by only 5.2 percent in the second half of 2022 to reach a full year growth rate of 6.5 percent–the lower band of the government’s growth target.
The Development Budget Coordination Committee (DBCC) has set the country’s annual GDP growth target at 6.5 percent to 7.5 percent for 2022, and 6.5 percent to 8.0 percent in the next five years.
Moreover, Diokno expressed confidence that there will be no downgrades in the country’s credit rating, as the Marcos administration has crafted an economic plan that will boost investor confidence and ensure accelerated recovery.
“I think we are very confident that there will be no downgrades. In fact, it is notable that despite the two-year pandemic, the rating agencies have affirmed our investment grade rating, and downgraded nearly one-third of the emerging economies and even some developed countries,” Diokno said.
“We're confident that we have presented a medium-term fiscal plan, as stated by the President, that is credible and doable. So, we don't expect any downgrade within the next few years. In fact, we are working for an upgrade,” he added.
Diokno is similarly optimistic about the Philippine peso returning to P55 level or even lower against the US dollar by the end of the year.
“As you know, there's usually an influx of overseas Filipino remittances towards the fourth quarter. The peso has actually stabilized and, in fact, it's strengthening, and so I bet it will be around 55 by the end of the year,” said Diokno.
Meanwhile, Diokno clarified that the reduction of the debt-to-GDP ratio will not happen over one year, but it will taper off to about slightly less than 60 percent by 2025.
The budget deficit-to-GDP ratio, on the other hand, will decrease to 3 percent by the end of the Marcos administration.