MANILA, Philippines – The Philippines is among the countries in emerging Asia which is expected to enjoy ‘subdued’ inflation this year despite strong economic growth, which would allow central banks to keep interest rates at low levels, a global investment bank said in a report.
Economic growth could hit 6.8 percent this year before slightly slowing down to 6.5 percent next year, while inflation will remain low at 3.8 percent and 4.1 percent, respectively, Barclays said.
The readings, it said, were consistent with the rest of four other countries in emerging Asia namely South Korea, Indonesia, Thailand and India, which would all benefit from low interest rates to boost economic activity.
“Despite robust domestic demand and generally loose monetary policies, inflationary pressures continue to fall in most of the region led by lower commodity prices,” the investment bank said in its Global Economics Weekly report.
Last week, the National Statistics Office reported inflation for May was steady at 2.6 percent from the previous month as majority of commodities recorded slower price increases during the period.
The latest figure brought the year-to-date average to three percent, falling at the low-end of the Bangko Sentral ng Pilipinas’ three to five-percent target for the year. Inflation hit 3.2 percent last year.
According to Barclays, inflation in the country will likely be “contained” throughout the year despite growth remaining “solid.” The first-quarter expansion of 7.8 percent beat market expectations.
One of the reasons is “well behaved” food prices, which accounts for the bulk of the consumer price index used to read inflation. A similar scenario is seen in other parts of the region.
In India, the “arrival” of southwest monsoon will help sustain crop production and thus tame supply-related inflation that has slowed the country’s growth for the past quarters.
Falling input costs, meanwhile, will tame Thailand’s consumer prices along with the strength of the Thai baht that keeps imports more affordable. South Korea’s inflation will be manageable due to lower transport costs.
While it may be the “only outlier” in the region, Barclays said Indonesia’s plan to raise fuel prices – which could stoke inflation – could be managed by its central bank by limiting liquidity in the system.
Over the region though, “the scope for monetary policy to remain accommodative has increased” with slower than expected inflation, the bank pointed out.