Moody’s Analytics expects inflation to be the biggest headache of the soon to be proclaimed chief executive who will replace President Rodrigo Duterte who is scheduled to step down on June 30.
Moody’s Analytics associate economist Sonia Zhu said inflation management has become a key policy point as the consumer price index (CPI) shot up to 4.9 percent in April, the highest in more than three years, from four percent in March.
This was higher than the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP) for 2022 and 2023 amid soaring global oil prices as well as supply-chain disruptions caused by the strict COVID-19 lockdowns in China.
“The incoming president will need to treat inflation as a top economic priority,” Zhu said.
Presidential frontrunner and former Senator Ferdinand “Bongbong” Marcos Jr. is currently enjoying a huge lead to second placer Vice President Leni Robredo.
“Both Marcos and Robredo have floated fiscal support, with Marcos flagging the idea of a fuel subsidy and Robredo suggesting targeted social aid for the poor. The prolonged pandemic has widened income disparity in the Philippines and increased unemployment,” Zhu added.
The research arm of the Moody’s Group said unemployment rate climbed to around seven to eight percent during the course of the COVID-19 pandemic versus the pre-pandemic level of around five percent.
According to Moody’s Analytics, the Philippines might not have the financial capacity to provide such fiscal cushioning as heavy borrowing to fund pandemic stimulus packages took the country’s debt-to-gross domestic product (GDP) ratio beyond 60 percent last year from 54.6 percent in 2020.
“The limited fiscal room has the new administration’s hands tied when it comes to navigating price hikes. It may be the central bank that has to do the heavy lifting to soothe inflation,” Zhu said.
Zhu said the BSP Monetary Board could start hiking interest rates from record lows starting June if the country’s first quarter expanded by more than six percent.