Economists see wage-fueled price spikes
BANK ECONOMISTS expect inflation to clock in faster in 2018 and to remain elevated over the next two years, as daily minimum wage increases add to price pressures.
A survey conducted by the Bangko Sentral ng Pilipinas (BSP) among private sector economists in June showed a 4.5% mean and median forecast for overall commodity price hikes this year, higher than the 4.1% they gave in the March poll. This matches the latest full-year estimate given by the central bank in its June 20 policy review and surpasses the 2- 4% target range for 2018.
“Analysts noted that risks to inflation in 2018 remain tilted to the upside,” the BSP said in its quarterly inflation report, citing higher, volatile global oil prices, a weaker peso and the impact of tax reform on prices of basic goods among factors.
Other factors flagged by analysts include higher public spending on infrastructure, adverse weather conditions, higher utility rates and rising global inflation.
“Among the upside factors would be the additional wage adjustment because some wage adjustment has been factored in the baseline scenario forecast of the BSP,” Deputy Governor Diwa C. Guinigundo said in a briefing on Friday.
“So in case of additional wage adjustment, that would be a risk to the forecast.”
Last week, the Labor department announced that daily minimum wages for private sector workers will increase in at least nine regions, with adjustments ranging from P9 to P56.43. Other regions, including Metro Manila which is regarded as a benchmark for wage hikes, are expected to follow suit.
Prior to this, Mr. Guinigundo said the central bank factored in an P18-20 increase in daily minimum wages to official inflation forecasts, based on average salary increments in previous years.
Sought for comment, two economists said higher- than- expected wage increases may require stronger policy responses.
“The wage increase, I believe, is already factored into the BSP’s past policy moves, although the fact that it is higher than expected suggests that there may
be a need to review the projected path of inflation to determine if future rate hikes are necessary,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines.
“At the very least, the aboveaverage hike in wages increases the chances of more tightening moves from the BSP,” Mr. Dumalagan added, noting that the sustained weakness of the peso may also prompt policy makers to respond strongly.
Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, added that the BSP could turn more aggressive.
“If the P56 per day is fulfilled, then that’s almost three times more than what was estimated. The impact will be quite significant,” Mr. Asuncion said via e- mail, noting that he sees two more rate hikes this 2018.
“However, with the way the second round impact is playing out, the BSP can opt to pull the trigger with 50 bps right away to address hikes in the level of prices down the line,” he added while pointing out that supply- side issues driving up prices should actually be “addressed via other economic policies” rather than relying solely on interest rate tweaks.
Inflation is seen to ease to 3.8% annually in 2019 and 2020, according to the BSP poll.
Moody’s Investors Service has flagged that Philippine authorities are facing “challenges” in managing mounting inflationary pressures. Moody’s on Friday affirmed the country’s credit rating at “Baa2” — still one notch above minimum investment grade — with a “stable” outlook.