Uneven growth for consumption

With inflation on a downtrend, one would assume that Filipino consumers would likely open their wallets and spend more.

Apparently not, as research appears to show that Filipino spending patterns are now affected by different generational outlooks, competitive pressures, disinflation, spending leakages and even the evolving global tariff structure.

Research by the Metrobank Group’s First Metro Securities Brokerage Corp. as of August this year has a more nuanced reading of Philippine consumers even as the inflation outlook shows a downward trajectory, with the latest government data confirming that headline inflation fell from 1.4 percent in June to 0.9 percent in July.

Thus, the average inflation for the first seven months of the year is at 1.7 percent, below the government’s inflation target range of two to four percent.

The Bangko Sentral ng Pilipinas reported that non-food inflation eased due to the slower inflation for electricity, gas and other fuels, and downward adjustments in prices of some petroleum products.

Meanwhile, food inflation fell as rice and vegetable prices continued to decline. Rice prices decreased, driven mainly by lower international rice prices, sufficient supply and direct government measures to stabilize prices.

Of course, the low inflation that we are currently experiencing is not expected to last, as the BSP has already pencilled in a higher inflation rate range for 2026 and 2027.

The unemployment rate, research showed, continues to improve post-COVID, while underemployment figures have similarly declined. More people are being employed, indicating the availability of jobs to absorb a rising labor pool.

Based on First Metro Securities’ research, wage growth increased 24.4 percent compared to pre-COVID levels. This compares to the 24 percent growth in inflation during the same period.

Consumer confidence remains optimistic even though business confidence fell in the second quarter this year due to concerns over the political uncertainty stemming from the impeachment attempt against the vice president.

However, there are still some concerns going forward as the world awaits the impact of the US reciprocal tariffs, and locally the post-midterm elections slowdown and the sugar off-milling season.

The tariff concerns are more on second round effects, especially since most Philippine consumer companies are domestically focused, with limited direct exposure to US tariffs, even though there are a few firms that have international operations or export channels.

The broader concern is on indirect and second-order effects from global trade recalibrations, such as slower economic growth and weaker consumer sentiment.

Business Snippets learned that local snack manufacturers are particularly concerned once US-made snacks enter the Philippines duty-free and displace locally manufactured items which may affect the viability of their domestic operations.

Another factor that First Metro Securities is monitoring is the slower growth in remittances by overseas Filipinos, noting that the BSP reported that cash remittances in May grew by 2.9 percent, with personal remittances at $2.97 billion. This resulted in cumulative remittances of $15.34 billion, for a three percent year-on-year increase.

In peso terms, cash remittances fell slightly to P147.87 billion in May, showing a negative 0.9 percent year-on-year growth compared to last April’s remittances and a 3.8 percent YoY growth.

On the other hand, a favorable development for consumption is credit expansion, with Philippine banks continuing to lend to consumers (excluding residential mortgages, supported by stable non-performing loan ratios).

The research also showed that household consumption is reaccelerating after a slowdown last year. Local consumption is showing early signs of recovery, with first quarter household final consumption expenditure rising 5.3 percent YoY, outpacing the full year 2024 growth of 4.85 percent.

Tourism receipts, it was noted, is back to pre-COVID levels--supported by the recovery of domestic tourism. Unfortunately, though, inbound tourist arrivals are still at 73 percent of pre-COVID levels.

Retail sales, the research showed, are materializing, with recovery in domestic demand reflected in eight consecutive months of positive retail sales growth.

First Metro Securities warns though that while macro indicators point to a broadly improving consumption backdrop, they expect the recovery to be uneven across consumer segments they are monitoring which will be affected by four key dynamics.

These are demographic shifts wherein spending decision habits are continuously shaped by the values and preferences of each generation; intensifying competitive pressures as Filipinos are willing to try novel goods and services which indicated fragmenting brand loyalty; disinflation erodes pricing power. As inflation moderates, consumers have become more resistant to price hikes and lastly - spending leakages from international travel and online gaming that are non-productive channels that diverts a share of households’ discretionary spend.

Spending leakage from online gaming is particularly disturbing for me at this point in time when the current administration appears reluctant to act on raising concern about the more pernicious effect of online gambling on the less financially savvy youth who are increasingly being targeted by online gambling operators.

The ease by which the youth are able to engage in online gambling, using their digital cash allowance provided by often clueless parents (if statistics could be accurately gathered) may surprise us all.

The research concludes that while the overall outlook for consumption remains constructive, First Metro Securities anticipates that revenues will be shaped by evolving trends and structural shifts. They point out that the outcome of tariff negotiations remains a wildcard with the potential to either support or hinder the retail sector performance.

For their stock picks, they favor names with the ability to capture a wide spectrum of consumer demand, supported by diversified product offerings and expansive networks. Brand strength and innovation, they point out, is also key — with the research group’s preference for companies with brand equity and a proven track record of product innovation — attributes that are critical in defending market share amid rising competitive pressures and shifting consumer preferences.

Most importantly, their research group prefers counters that offer high and stable dividend payouts, particularly at current valuations, as they provide a cushion against market volatility and enhance total shareholders returns.