Philippines among least vulnerable to stagflation – think tank

MANILA, Philippines — The Philippines is seen as one of the least vulnerable to stagflation among emerging markets (EMs), even as the country continues to deal with rising commodity prices.

Based on the latest stagflation risk scorecard of think tank Oxford Economics, the Philippines ranked second to the last among 18 EMs in terms of vulnerability to stagflation. It got a score of 4.5 out of nine.

Stagflation is an economic situation where a country is facing persistent high inflation, coupled with high unemployment rate and low economic output.

Oxford EM economists Lucila Bonilla and Gabriel Sterne said risks have risen significantly among EMs, amid elevated prices of commodities and higher global yields.

“The best performers are Czech Republic, the Philippines, Indonesia, Poland, and Peru,” the economists said.

“The Philippines, Indonesia, and Czech Republic’s strengths are muted impulse and amplification factors; Peru stands out for its strong policy responses; while Poland benefits from strong policy credibility,” they said.

Of the 18 economies, Turkey got the highest score of eight, making it the most vulnerable to stagflation. Other countries at risk are South Africa, Egypt, Colombia and Chile.

Oxford’s stagflation scorecard aggregates 12 vulnerability metrics that summarize four risk categories – namely, impulse and amplification, policy responses, policy credibility, and structural change.

In the Philippines, inflation remains on an uptrend, with the latest at a three-year high of 4.9 percent in April. May inflation is already seen breaching the five percent level to a high of 5.8 percent.

Despite the consistent uphill climb in inflation, gross domestic product grew stronger-than-expected at 8.3 percent in the first quarter.

Similarly, the country’s unemployment rate already eased to 5.8 percent in March, its lowest level since lockdowns started two years ago.

Bonilla and Sterne said the relentless increase in commodity prices is a major source of volatility among EMs.

“Consumer prices are rising everywhere and squeezing household incomes. The recent uptick in food prices will have a greater impact on EMs owing to the higher share of food and commodities, in general, in their inflation baskets,” the economists said.

“Economies that import lots of energy, fertilizers, and grain have seen import prices soar. The impact is two-fold: first, via higher prices for imported consumer goods; second, via reduced economic activity if businesses see their supply chains disrupted or simply cannot afford the increases,” they said.

Amid global tensions, Oxford sees Philippine inflation jumping to 5.7 percent for full year 2022 or a 1.8 percentage point increase from the 2021 level of 3.9 percent. On the other hand, GDP is expected to grow 6.4 percent this year.