Inflation to ease to 3% this year, says Fitch unit

MANILA, Philippines — Inflation may drop to three percent this year, providing a boost to private consumption, according to a report by Fitch Solutions Macro Research.

In its latest Philippines consumer outlook titled “Improving labor market to buttress spending,” Fitch Solutions said lower inflationary pressures would provide a boost to spending.

According to latest data from the Philippine Statistics Authority, inflation averaged 3.4 percent in the first semester after easing to a 22-month low of 2.7 percent in June on lower food prices as well as strong peso.

Inflation accelerated to 5.2 percent last year from 2.9 percent in 2017, exceeding the two to four percent target of the Bangko Sentral ng Pilipinas (BSP) due to elevated oil and food prices as well as weak peso.

Fitch Solutions said private consumption growth in the Philippines is gaining steam.

The research unit sees private consumption growing by six percent this year and five percent next year after expanding by 5.8 percent in the first quarter.

“The inflationary pressures that weighed on household consumption through the first three quarters of 2018 have dissipated, while a strong labor market backdrop will also prove supportive of household confidence and subsequently, consumption growth,” it said.

Furthermore, it added remittance inflows would also support disposable incomes in the country and in turn, boost spending.

“Consumer sentiment remains broadly steady, indicative of this brighter consumer outlook although we highlight that consumers are less upbeat about household disposable income growth,” Fitch Solutions said.