INFLATION remains a threat to economic stability despite an easing consumer price index (CPI) growth in recent months, according to a congressional think tank.
In a report on Tuesday, the Congressional Policy and Budget Research Department (CPBRD) said inflation could revive if the agriculture and manufacturing sectors fail to meet rising demand amid an increase in money in circulation.
“The observed easing of inflation rates in recent months belies the full extent of the existing and burgeoning inflation problem,” the CPBRD said in the report, written by David Joseph Emmanuel Barua Yap, Jr., Jhoanne E. Aquino, Jubels C. Santos, and Marielle R. Belleza.
“Major concerns on the domestic side include anemic growth in the agricultural sector and weaker-than-expected growth in the industrial sector — particularly in manufacturing,” it added. “These contribute, in no small part, to the inability of supply to meet rising demand.”
Inflation eased to 3.7% in June due to a slower rise in electricity and transport costs, the Philippine Statistics Authority said.
For the first six months of 2024, headline inflation averaged 3.5%, higher than the central bank’s 3.3% full-year forecast.
In its low-inflation scenario, the think tank sees CPI growth at 3.8% in the second quarter, easing to 2.4% in the third quarter, and rising again to 3.64% in the fourth quarter.
On the other hand, the CPBRD’s high-inflation scenario contemplates an acceleration to 4.13% in the second quarter, a decline to 2.47% in the third quarter, and then reviving to 3.89% in the fourth quarter.
“The forecasts suggest that inflation will accelerate in the second quarter (3.80% to 4.13%) of 2024 before tapering off in the third quarter (2.45% to 2.47%),” it said. “The seasonality of inflation manifests itself as it is projected to increase in the last quarter of 2024 (3.64% to 3.89%).”
Money supply growth outpaced the actual production of goods and services in the economy, the CPBRD said, noting the compound annual growth rate (CAGR) in the money supply of 11.43% between 2010 and 2023.
“Compared with the annual average of quarterly real GDP growth (i.e., CAGR of 4.99%), it appears that M2 grew at a much faster pace than the actual production of goods and services in the economy,” according to the CPBRD.
“An increase in the money supply can lead to higher overall demand for goods and services. If this demand exceeds the economy’s capacity to produce, it can result in demand-pull inflation,” it added.
However, enhancing industrial and agricultural productivity could help stifle inflation, the CPBRD said, also noting that a disciplined monetary policy could help absorb excess liquidity.
The think tank also noted that oil price hikes, energy and food costs, and government subsidies pose potent inflationary risks for the economy.
It added that international inflationary risks include efforts by some countries to replace the dollar as global tender, a Fed decision not to move on rates, an uptick in election spending for the upcoming US presidential elections, and a recession originating from China or the US. — Kenneth Christiane L. Basilio
