Supply bottle necks, high prices persisting

Some will face more benign conditions, while others will feel the full brunt

As the global economy faces supply bottlenecks and inflation continues to be on an uptrend, the Financial Stability Coordination Council on Monday said the local market is currently going through a global “storm.”

“The crux of our systemic risk assessment is that the market is going through a storm. By their very nature, there is considerable uncertainty with storms and the extent of damage they can cause,” the Financial Stability Report 2022 read.

“Some will face more benign conditions, while others will feel the full brunt. However, none of this is known in advance. The question then is how prepared a community is for more rains, and more rainy days,” it added.

The FSCC said the volatility of the global oil market, the effects of the Covid-19 pandemic on global supply chains, and climate security are some of the risks the country face.

To deal with this, the FSCC said that authorities should respond to high inflation by tightening policy rates. However, if high inflation stays and policy rates stay tight, this could cause economic problems.

“The Council remains cautiously optimistic of the country’s prospects but realistically grounded on the likelihood of change,” FSCC chairman and BSP Governor Felipe Medalla said in the report.

Medalla said that consumption is still high because the market is investing in long-lasting equipment and the banking system is still strong. However, the FSCC is still examining how supply bottlenecks and tightening financial conditions in advanced economies are affecting other countries.

Inflation near 3% late this year

Despite the headwinds, Medalla said that inflation in the country is seen to return ‘back to normal’ later this year.

The Council remains cautiously optimistic of the country’s prospects but realistically grounded on the likelihood of change.

“By the third quarter of this year, inflation will be back to normal,” Medalla told the media at a separate event on Tuesday.

He added that the country’s economy was still strong and that growth would continue to be driven by pent-up domestic demand.

Medalla also mentioned that BSP was ready to do whatever was needed to bring inflation back to the target.