Inflation in the Philippines is expected by the Asian Development Bank (ADB) to further ease as reduced import tariffs on staple rice and other food products spill over to domestic retail prices, boosting consumption and overall economic growth.
The Manila-based ADB's Asian Development Outlook (ADO) report for September 2024 showed lower headline inflation forecasts for the Philippines: for this year, an updated projection of 3.6 percent from 3.8 percent in the April report; for next year, down to 3.2 percent from 3.4 percent previously.
If realized, these annual inflation rates will be the lowest since the 2.4 percent posted in 2019 and 2020. As of end-August, the year-on-year rate of increase in prices of basic commodities averaged 3.6 percent, within the government's two- to four-percent target range of manageable price hikes conducive to economic growth.
Last year, inflation hit six percent, the highest since the 8.2 percent posted in 2008 at the height of the global financial crisis.
Here in the Philippines, "food price pressures are expected to continue to dissipate on the impact of reduced import duties on key staples," the ADB said in its latest ADO released on Wednesday, Sept. 25.
The ADB pointed to recent government orders slashing duties slapped on imported rice to 15 percent (from 35 percent previously) up to 2028, alongside the prolonged lower tariffs on corn, mechanically deboned meat, and pork.
Department of Agriculture (DA) Secretary Francisco Tiu Laurel Jr. told a Palace press briefing on Tuesday, Sept. 24, that DA estimates had shown rice prices would start going down in mid-October before the tariff reduction's impact could be fully felt by January of next year.
Department of Finance (DOF) Secretary Ralph G. Recto told the same briefing that it would translate into a P6-per-kilo reduction in rice prices.
But the ADB's Philippine office cautioned in a statement that "risks remain from potential severe weather events which could drive inflation higher."
Moving forward, the ADB said "a sustained moderation in inflation could allow further monetary policy easing after a 25-basis point (bp) cut in the policy rate to 6.25 percent in mid-August."
The ADB did not forecast how much the Bangko Sentral ng Pilipinas (BSP) would further bring down key interest rates. The multilateral lender noted that the pace of the ongoing easing cycle of the US Federal Reserve, whose movements influence central banks in the Asia-Pacific region, "remains uncertain and dependent on incoming data."
Recto, who represents President Marcos in the Monetary Board, told Tuesday's Palace briefing that the BSP's highest policy-making body may consider cutting rates at their next monetary policy stance meeting in October as aggressively as the US Fed's 50 bps last week.
Slowing domestic inflation and the ensuing lower borrowing rates would support Philippine economic growth, which the ADB kept at earlier projections of six percent for 2024 and 6.2 percent for 2025.
The ADB's gross domestic product (GDP) growth forecast for this year was at the lower end of the government's six- to seven-percent goal, while next year's will fall short of the targeted 6.5 to 7.5 percent. Both projections are nonetheless faster than last year's 5.5-percent economic expansion.
"Most of the ingredients for the Philippines' sustained economic growth are in place — rising government revenues are boosting public expenditures on infrastructure and social services, increasing employment is driving consumption, and reforms to open the economy to more investments are underway. With inflation slowing, the country is in a strong position to lead growth in Southeast Asia," ADB Philippines country director Pavit Ramachandran said.
The ADB noted that it is a financing partner of the Philippine government in rolling out big-ticket infrastructure projects, including the Bataan-Cavite Interlink Bridge, Malolos-Clark Railway, South Commuter Railway, and Integrated Flood Resilience and Adaptation Project covering three major river basins in Luzon and Mindanao.
It cited that the Marcos administration's "Build Better More" infrastructure program will not only enhance physical connectivity via airports, bridges and railways as well as strengthen water management through flood control, irrigation and water supply projects, but also prioritize agriculture development, climate change adaptation and mitigation, digital connectivity, and energy projects.
However, "external factors such as a sharper slowdown in major advanced economies and China, financial volatility due to US monetary policy decisions, geopolitical tensions, and rising global commodity prices also pose threats to growth," the ADB warned.