Dark clouds on the horizon

More rate hikes are expected following the inflation data released by the Philippine Statistics Authority in November which saw the Philippines marking its highest in 14 years.

The 8 percent surge last month was driven primarily by costlier food prices brought about by recent typhoons which hammered the production of crops like vegetables, rice, and fruits. Core inflation, which includes volatile energy and food prices, rose by 6.5 percent.

Experts believe the rise in prices is driven by supply-side pressures rather than an increase in demand. This means that further rate hikes will come later this month given the pace of inflation.

The government, according to National Economic and Development Authority chief Arsenio Balisacan, will ramp up food production in a bid to ease price pressures.

"The government is continuously implementing targeted subsidies and discounts to allay the impact of the higher prices of essential goods, especially for the vulnerable sectors and low-income earners of our society," he said.

The November inflation data, according to analysts, suggests that the central bank still has several rate hikes in the pipeline to rein in demand.

They also see the trend continuing next year under the weight of five straight months of accelerating inflation and resurgent domestic demand fueled by the so-called revenge spending.

Despite a recent commentary suggesting a possible pause by the first quarter of 2023, they see the Bangko Sentral ng Pilipinas retaining its hawkish tilt and carrying out a 50 basis points increase.

Following the data's release, the BSP reiterated it "remains prepared to take all further monetary policy actions necessary to bring inflation back to a target-consistent path over the medium-term."

It has raised rates six times this year including two 75-basis point increases in July and November. Another 25 basis points or 50 basis points hike was flagged.

In what could be a sign of deceleration, inflation in the capital region slowed for the first time since July as food, utilities, and fuel cost increases moderated.

While the peso remains Southeast Asia's worst performer this year, it has gained this quarter, along with most peers in the region. Philippine stocks halted a three-day loss and bucked a regional trend as banks rallied on rate hike expectations.

Observers, however, believe the country is not yet out of the woods. While inflation is seen to cool from 2023 after quickening to a 2008 high, the government's economic team has lowered its growth forecast for next year as the global outlook worsens.

Already, the gross domestic product is seen to expand 6-7 percent next year from a previous projection of 6.5-8 percent, according to the Development Budget Coordination Committee, which sets economic assumptions for fiscal purposes. It left this year's growth estimate of 6.5 to 7.5 percent unchanged.

"This momentum is expected to slightly decelerate in 2023," DBCC said in a statement, "considering external headwinds such as the slowdown in major advanced economies."

The latest projections, according to Bloomberg, come as Marcos nears the completion of his first six months in office amid a slew of challenges including soaring prices and borrowing costs and tepid global demand. Despite the forecast reduction, the Philippines is still seen as among the economic growth leaders in Asia.

The economic team expects inflation to average 5.8 percent this year before cooling to 2.5-4.5 percent in 2023 and easing back to the 2-4 percent target band through 2028. It also used an exchange rate assumption of 55-59 per dollar for 2023 from a range of 54-55 this year on heightened global uncertainties and the Federal Reserve's aggressive policy tightening.

State intervention in the agriculture and electronics industries is expected to support GDP expansion of 6.5 percent to 8 percent from 2024 to 2028.

While the recent figures may prove to be disheartening, the average Juan de la Cruz will just have to tighten his belt some more and hope that these dark clouds will soon pass.