Steeper drop in inflation likely to start this month

Steeper drop in inflation likely to start this month

MANILA, Philippines — Prices of goods and services will likely start decelerating this month, and this trend is likely to be sustained going into 2022.

In its latest Market Call report, First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) Capital Markets Research said inflation may drop to four percent or even lower this November, and this will go down further by next month.

“This will continue easily into the first quarter of 2022, even as crude oil prices ease, albeit to still relatively high levels,” FMIC said.

Headline inflation slipped anew to 4.6 percent in October from 4.8 percent in September as lower food costs managed to offset the impact of elevated oil prices, but its spillover effects may be a concern moving forward.

“While crude oil prices remain elevated, they appear to have flattened in November. However, pent-up demand of high-income consumers would put a mild upward pressure on prices,” it said.

Average inflation now stands at 4.5 percent, still breaching the central bank’s revised 4.3 percent target for 2021.

“On the whole, we still expect four percent or below inflation by November. The 2022 inflation will likely ease from their recent trajectory to 3.7 percent,” FMIC said.

Meanwhile, FMIC emphasized that the stronger-than-expected third quarter economic performance at 7.1 percent added more optimism to firms and consumers.

FMIC said the reduced restrictions in Metro Manila and the faster rollout of COVID-19 vaccines should yield better fruits in the last quarter.

The government is also expected to ramp up its infrastructure spending, while large public-private partnership projects continue with less impediments.

On manufacturing, FMIC expects gains to hit the double-digit territory, while the services sector should provide above-average performance.

“Investment spending in durable goods should also accelerate as firms’ earnings showed continuing improvements until the third quarter,” FMIC said.

On the other hand, the exchange rate may have a slight appreciation bias in November and December due to the seasonal strong inflow of remittances amid the Christmas holidays, it said.