UA&P: April inflation to breach 5%, erode recovery gains
Philippine inflation may spike past 5 percent in April due to the energy crisis, potentially undermining below-potential growth projected for the first quarter and eroding recovery gains, economists at the University of Asia and the Pacific (UA&P) said.
The projection, which was in UA&P’s latest The Market Call, would be in line with the Bangko Sentral ng Pilipinas’ (BSP) outlook for April.
If realized, this would once again breach the official 2-percent to 4-percent target band and push full-year inflation to 5.1 percent.
“Our base case is that oil prices will fizzle towards $80/bbl on continued de-escalation, but inflation could hover around 5 percent on second-round effects,” UA&P said.
“We anticipate faster inflation in the coming months as second-round effects from the initial oil price shock and base effects push inflation above target. BSP’s FY-2026 inflation forecast was upped to 5.1 percent, seeing sustained upward price pressures over the medium term,” it added.
Already, the Philippines recorded a 4.1-percent inflation rate in March, when the war was at its peak, marking the highest inflation print in nearly two years.
Growth outlook
UA&P also retained its 3.1-percent first-quarter growth outlook. Before the war, the think tank had expected recovery to be supported by stronger government spending, a healthier labor market, export gains, and improved bond market conditions, helping the economy rebound from last year’s performance.
However, with the Middle East war, UA&P said these gains were at risk.
“The global impact of the Middle East conflict resulting in slower growth and higher inflation has similar, even magnified effects on the Philippine economy,” UA&P said. “Government spending and employment may pick up, but high inflation and interest rates will limit gains.”
Government spending jumped 25.8 percent to P423.2 billion in February, driven by allotment releases to local government units. Public spending had been a key drag on growth last year amid the flood control corruption scandal.
The labor market also improved in February, with the unemployment rate easing to 5.1 percent from 5.8 percent in January. The labor force participation rate rose to 63.8 percent from 62.3 percent, while employment levels improved to 94.9 percent from 94.2 percent.
But economists, including UA&P, warned that these gains may be short-lived due to the war.
“Downside risks to the labor market are materializing with most of the flashpoints in the Middle East conflict emerging in March. Businesses may have undertaken temporary layoffs to protect operations during the height of the oil price crisis,” UA&P said.
UA&P also flagged rising yields in government securities, with long-dated papers increasing by more than 100 basis points and short-dated ones by less than 60 basis points. This prompted the Bureau of the Treasury to accept only 67.7 percent of its offerings in March.
“The escalating Iran conflict and its inflationary impact induced a massive risk-off sentiment that translated to lower trading volumes and sharply elevated yields,” UA&P said.
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