Inflation might hit 6.7% in September or October

Vendors wearing face masks for protection against the coronavirus disease (COVID-19) stand by their fruit stalls at a public market in Quezon City, Metro Manila, Philippines, February 5, 2021. Inflation in the country might reportedly peak at 6.7 percent in September or October this year.REUTERS/Eloisa Lopez
Vendors wearing face masks for protection against the coronavirus disease (COVID-19) stand by their fruit stalls at a public market in Quezon City, Metro Manila, Philippines, February 5, 2021. Inflation in the country might reportedly peak at 6.7 percent in September or October this year.REUTERS/Eloisa Lopez

A report from the First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) revealed that inflation might peak at 6.7 percent this year in September or October, in light of expected remittances starting November due to the holidays.

The amount sent by overseas Filipino workers (OFWs) is expected to strengthen the peso and make it less costly to buy imported goods.

Despite this positive outlook on the peso-dollar exchange, the projected 6.7 percent inflation will likely negatively affect economic output for the second half of the year, especially due to the increase of crude oil prices in the market, its subsequent effects in the labor market, and the United States Federal Reserve continually increasing rates in an attempt to curb inflation. When the Fed hikes its rates, the peso weakens.

FMIC and UA&P also highlighted the balancing act of the Bangko Sentral ng Pilipinas (BSP), who are urged to raise interest rates because of the US Fed. If they fail to do so, it will only become costlier to import goods because of the weakening peso.

“Besides, food inflation in the United States and other advanced countries remains stubbornly high due to droughts and other supply issues,” the partners said. “The [peso-dollar] exchange rate will remain volatile depending on US inflation and United States Federal Reserve moves, even though the [peso appreciating will] stay limited due to the burgeoning trade deficit.”

Trade data last July showed that the Philippines hit an all-time low trade deficit worth $5.9 billion (P348.23 billion as of writing), brought upon by an unexpected 7.9 percent contraction of electronic exports, which is the lion’s share of outbound goods.

Mark Ernest Famatigan is a news writer who focuses on Philippine politics. He is an advocate for press freedom and regularly follows developments in the Philippine economy. The views expressed are his own.

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