The Philippine Statistics Authority (PSA) delivered a shocker this month with its gross domestic product (GDP), inflation and unemployment reports.

GDP slowed down further in the first quarter to 2.8 percent from 3.0 percent in the previous quarter and is the slowest since 2009.

Inflation spiked to 7.2 percent in April from 4.1 percent in March. Unemployment remains elevated at 5.0 percent in March from a peak of 5.8 percent in June, but is still significantly higher than the 3.9 percent level last year.

With the trends in these three macroeconomic indicators in mind, it was no surprise when someone during the GDP briefing uttered the dreaded economic word — stagflation.

Nobody wants to be the boy who cried wolf and caused panic in the markets but it is also unhealthy not to consider the threat considering the experience we had in the 1980s.

The costs of the stagflation generated by the confluence of the debt moratorium and the increased political risk in the 1980s are still being felt today.

Discussing it should help Filipinos understand the immense challenges for policymakers in the next few months and why they need support.

It is a complex issue because inflation and growth risks are intertwined as the first quarter GDP suggests. The surge in inflation has twin drivers, namely, rice and fuel.

The rice issue is policy driven as we are trying to support rice farmers after the weak domestic palay prices in 2025 by putting controls on imports.

This is a delicate balance given that the poverty incidence outside the National Capital Region (NCR) can be exacerbated if palay prices are allowed to linger at levels that can hurt rural incomes.

But without imports, the supply of rice, particularly outside the NCR, can be tight and hurt consumers. Balancing these two needs is within the control of policymakers.

What is not in our control is the fuel situation. This is a consequence of the US/Israel-Iran war.

While we can voice optimism that peace can still be achieved, the analysis presented in my previous articles suggests we are close to or have already crossed the Rubicon.

The effects of the closure of the Strait of Hormuz are likely no longer transitory and are now being transmitted to prices well into 2027. We can hope, but the outlook that fuel prices will normalize at pre-war levels is decreasingly likely with each passing day.

But it is not just inflation and its twin drivers. Economic growth is also at risk because investment demand, particularly public investment, has skidded due to the flood control scandal last year.

The recommended resolution is for the government to start spending again.

But as the GDP results show, public construction was down by 31.5 percent in the first quarter, which is still elevated from the 38.6 percent drop in the fourth quarter last year.

This is an improvement, which is a good sign, but comparing the previous experience of a pullback in government spending in 2010-2011, the narrower contraction is less.

What this tells us is that even though the national government is making the effort to boost growth by investing — while navigating the mines of corruption — friction and drag remain from their caution.

The question is whether the slowdown in GDP growth will generate more urgency and if the government can turn on the switch to faster spending.

Given this combination of inflation risk and cautious government spending, it is difficult not to consider the stagflation scenario.

Having gone through one in the 1980s and subsequent economic crises, there are a few key lessons we have learned.

Difficult as it may be, we will have to attempt to achieve terminal velocity with tighter monetary policy combined with faster and heavier fiscal spending.

These are the cards we were dealt, and I think we have a good team.