Price cuts boost consumer outlook in last quarter of 2008

CEBU, Philippines - Despite the global financial crisis, the drop in oil and food prices helped improved consumer confidence in the last quarter of 2008, which was sustained in the first few months of 2009.

An economic weather report released by Metrobank Research development indicated that outlook for first quarter 2009 also picked up as the next quarter index improved by 13.9 index points quarter-on-quarter.

The fourth quarter overall consumer confidence index rose buy 12.5 index (quarter-on-quarter) to 40.3 percent.

Based the research, consumers however, cited lower income and higher cost of basic commodities as major concerns that affected their sentiment.

The year 2008, according to the research report was a dramatic year in terms of price movements, with global food oil prices soaring in the first half of the year, and then weakening sharply in the fourth quarter.

The Philippines' headline inflation rate continued to decelerate as it settled to eight percent in December, bringing the full-year average to 9.3 percent compared to 2.8 percent in 2007.

This was due to the negative annual growth posted in the fuel, light and water (FLW) index and the continued slowing down in the annual price increases of the food, beverage and tobacco (FBT) and services indices.

Last year's Department of Energy (DOE) data showed that price rollbacks totaled P29 per liter for gasoline and P28 liter for diesel.

The easing of commodity prices is expected to continue well into 2009, as the fall off in demand most especially from developed countries is expected to drive prices further down.

Upside risks to inflation outlook, however, remain tight as demand-supply conditions in the global commodities market, the pass-through effect of the weaker peso on retail prices, and the still elevated core inflation.

The research forecasts inflation to average at 7.4 percent in the first quarter and five percent in the end of 2009.

Because of improved outlook on consumer prices, the Bangko Sentral Ng Pilipinas (BSP) now has more room to maneuver policy rates. In its recent policy meeting, the BSP signaled a shift in its monetary policy as it slashed key rates by 50 basis points. The overnight borrowing and lending rate now stands at 5.5 percent and 7.5 percent respectively.

Philippine Retailers Association (PRA-Cebu) president Melanie Ng said that prices of commodities including non-food products have not posted increases in the last few months, in fact, other products have started to cut-down prices to stimulate consumer interest.

Ng, who owns several businesses, from technology gadgets, to home decors, and accessories, said that most retailers have adopted no-price-increase policies as much as possible.—Ehda M. Dagooc