Amid elevated consumer prices and slowing economic expansion, many Filipinos are holding back from spending their hard-earned money, resulting in the lowest private consumption growth rate since 2010 during a non-pandemic period, according to the think tank Oxford Economics.
"The main culprit is worsening confidence, which has been hit particularly hard by persistent inflation. Although inflation should subside later in the year, the impact on consumer sentiment will take time to feed through, so we don't expect a substantial boost in spending this year," Oxford Economics economist Makoto Tsuchiya said in a June 26 report.
Citing the Bangko Sentral ng Pilipinas' (BSP) quarterly consumer expectations survey (CES), Tsuchiya noted that consumer confidence and outlook have worsened since mid-2022, when the economy reopened from stringent pandemic restrictions.
"Arguably, some of the slowdown is due to waning base effects after the pandemic, but Q1 2024 growth of 4.6 percent year-on-year is below the pre-pandemic trend. Meanwhile, we have seen few signs of a worsening labor market or lending data. We therefore think the slowdown in consumption growth has been largely due to people's perception of risks and the associated changes in behaviors," Tsuchiya explained.
In particular, Tsuchiya pointed to Filipino consumers across different income brackets tightening their wallets as they anticipated "worsening economic conditions."
Tsuchiya said the latest CES results showed that this uncertainty among consumers mainly came from future price hike concerns, even as households' financial situation and incomes have been holding up well. "Concerns over economic conditions stem from high inflation rather than expectations of slowing growth, in our view."
"The nature of recent food-driven inflation also has implications for confidence, as households tend to feel the price impact from nondiscretionary daily items more acutely," he noted.
Consumers have been bearing the brunt of recurring high inflation since 2022.
As such, Filipinos have turned more pessimistic and are bracing for future inflation, even as Tsuchiya projected the year-on-year increase in prices of basic goods, especially food, to ease this year.
"Inflation expectations are also downwardly rigid. This is partly because households pay more attention to the level of prices, not growth. Although we expect a moderation in the inflation rate, we estimate the price level at the end of 2024 will be 22 percent higher than the 2020 level. For food, it's even higher at 26 percent," he said.
"Recurrent supply shocks over the past few years might have made households more cautious. If so, they might be reluctant to change their behavior and remain frugal long after prices have stabilized. This could result in an even greater lag this time, with inflation expectations weighing on spending for longer," he added.
"Despite our expectation of sustained disinflation, we don't expect it will result in a quick rebound in consumer spending. Any meaningful recovery is likely to be delayed until next year, and this year's growth will likely remain soft amid subdued domestic demand and tepid global growth," Tsuchiya said.