High inflation erodes savings, says Moody’s

MANILA, Philippines — Moody’s Analytics said elevated inflation is now eroding savings rates in Asia-Pacific, which surged through the pandemic, pushing rainy-day funds higher.

In a commentary titled “Hey, Big Saver,” Moody’s Analytics said higher prices are denting the mass of household savings built through the pandemic.

“With inflation still uncomfortably high across the region, we can expect this to continue through 2023,” Moody’s Analytic said.

The research arm of the Moody’s Group said high prices are sending retail sales skywards because consumers are being forced to spend more.

“But with cost-of-living pressures mounting, belts are being tightened,” it said.

Due to the pandemic, anxiety pushed household savings rates skyward as families built up their rainy-day funds.

“It wasn’t purely a matter of choice that pushed savings rates higher. Lockdowns prevented spending across large parts of the economy, notably on services such as travel and dining out,” Moody’s Analytics said.

It said that spending on services fell, while spending on goods soared as households bought electronics and homewares to make lockdowns bearable.

However, the increase in outlays for goods failed to make up for the collapse in services spending.

“Across the Asia-Pacific region, household consumption took a beating as families couldn’t, or wouldn’t, spend. In those economies where government supports flowed to households, aggregate disposable income lifted and took household savings rates along for the ride,” it added.

With incomes up and consumption down, Moody’s Analytics said many economies experienced a surge in excess savings.

As households became more confident to spend, the unit of Moody’s said “inflation is now eroding their nest eggs.”

“But there’s more at play. Bitingly high inflation is also chipping away at savings rates. Households are having to spend more at the shops as prices move ever higher, leaving less to be saved. Similarly, as central banks raise interest rates to tame inflation, homeowners face bigger repayments,” Moody’s Analytics said.

In the Philippines, the Bangko Sentral ng Pilipinas (BSP) has raised key policy rates by 400 basis points, bringing the overnight reverse repurchase rate to a 16-year high of six percent from an all-time low of two percent, to tame inflation and stabilize the peso that slumped to an all-time of low 59 to $1 in October last year.

Inflation remained elevated at 8.6 percent in the first two months despite easing slightly to 8.6 percent in February from a 14-year high of 8.7 percent in January.

It accelerated to 5.8 percent last year and exceeded the BSP’s two to four percent target range from 3.9 percent in 2021 due to soaring global oil pries brought about by Russia’s invasion of Ukraine and elevated food prices amid supply shocks caused by China’s zero-COVID policy.