Inflation to upset Filipinos' spending appetite, hurt 2023 economy

Metro Manila (CNN Philippines, January 27) — While the Philippines posted a strong finish due to Filipinos' revenge spending last year, it might fail to keep the momentum as economists see the trend waning with high inflation persisting in early 2023.

Ser Percival K. Peña-Reyes, director of the Ateneo Center for Economic Research and Development, said the country's economic performance in 2022 was a "welcome development," but inflation continues to raise risks.

On Thursday, National Statistician Dennis Mapa said the Philippine economy expanded by 7.6% in 2022, its strongest since 1976, as the market enjoyed pent-up demand following hard lockdowns experienced in the prior years.

READ: Strongest since 1976: PH records 7.6% economic growth in 2022

Peña-Reyes said the current administration must ensure inflation is under control, stressing officials should stop pointing the finger at external headwinds for rising prices.

"We cannot keep blaming outside factors for inflation," he told CNN Philippines in a phone interview, citing local issues on agricultural supply, such as sugar and onions.

The inflation rate in December 2022 alone surged to a fresh 14-year high at 8.1%, the highest since November 2008. Mapa earlier said vegetable prices last month were at their highest since February 1999, noting that onion prices had a "substantial" contribution to inflation.

The Department of Agriculture set a suggested retail price for red onions at ₱250 per kilogram after it found out that its price skyrocketed to a whopping ₱720 per kilogram late last year. President Ferdinand Marcos Jr. also approved the importation of onions, a move hit by critics as ill-timed as farmers were set for the harvest season.

ING Bank senior economist Nicholas Mapa said the local economic growth, especially in the fourth quarter, "remains heavily dependent on consumption." This, however, may ease due to inflation, expensive borrowing costs, and tight fiscal space.

"We can call it revenge spending or return to face to face, but it is quite clear that the Filipino consumer drove the growth story even in the face of high inflation. We may have been lucky to see this development support growth post lockdowns but authorities must also deliver results in their efforts to lower consumption as households may no longer be willing to turn a blind eye to elevated prices in 2023 as they did in 2022," he said.

Mapa believes high inflation would "be sticky over the coming months," which might drive the central bank to hike interest rates anew.

As the government moved to temper inflation by implementing jumbo rate hikes, Mapa said it has been "slowing investment momentum for both construction activity and durable equipment purchases."

"This will be a key impediment to growth as elevated interest rates can constrain expansionary activities and investment decisions, regardless of how banks choose to afford credit access to their clients. The recent increase in credit card rates could pare so-called ‘excess demand,’ but it could also backfire by hurting household balance sheets at a time where inflation remains elevated," he added.

Possible bright spots

Peña-Reyes sounded optimistic that the Philippines could benefit from possible developments on the front of COVID-19 being endemic, the reopening of the Chinese economy, and potential peace between Russia and Ukraine.

"If those external factors play out, these are good things... As other economists have been saying, guarded optimism out of prudence," Peña-Reyes said.

Meanwhile, Rizal Commercial Banking Corporation chief economist Michael Ricafort said the tax cuts on personal income starting January would boost consumer spending, which accounts for at least 70% of the economy. He said this could also help cushion some effects of inflation.

Ricafort also sees the following as growth drivers for 2023: improvements in OFW remittances and high employment rate, increased government spending, growth of the business process outsourcing, the revival of the tourism industry, and the resumption of face-to-face classes.

National Economic and Development Authority Secretary Arsenio Balisacan said Thursday the Philippines might be affected by the expected "sharp slowdown" in major economies.

For 2023, a "respectable growth" of 6% to 7% is expected, Balisacan said.

Marcos, in a statement Friday, said he was "happy" about the results, which also beat the government's target.

The president, however, acknowledged the threat of inflation.

"We still have the problem of inflation which means there is still a problem of certain sectors of society and of the economy, [who] have yet to enjoy the benefits of that growth. And that’s why inflation is something that we are attending to," Marcos said.