The inflation rate slowed down a bit from a near-10-year high of 6.7 percent in October to 6 percent last month. Still, the average inflation rate of 5.2 percent from January to November was way above the two to four percent projected for the year by the Bangko Sentral ng Pilipinas or BSP.
The inflation rate and the consequent higher interest rates were among the factors cited as both consumer and business confidence levels in the fourth quarter fell to their lowest since the fourth quarter in 2014. BSP Deputy Governor Diwa Guinigundo said the 6 percent gross domestic product growth in the third quarter of 2018 – the slowest in three years – was also a factor.
Respondents in the BSP’s Consumer Expectations and Business Expectations Surveys cited higher consumer prices and household expenses, low salaries and income as well as increased unemployment for their bearish outlook.
High prices have also led to weak demand even during the Christmas season, according to BSP officials, with no respite seen in the first quarter of the coming year when demand traditionally goes down after the holidays.
No respite can be expected either from high prices as the government forges ahead next month with the increase in the fuel excise tax. Pump prices of fuel products have nearly doubled since the hefty fuel tax was imposed at the start of this year under the Tax Reform for Acceleration and Inclusion law. The fuel tax under TRAIN combined with a weaker peso and surging crude oil prices. The consequent increase in transportation and other logistics costs pushed up prices of many basic commodities including food.
Despite the high inflation rate, the softening of world oil prices in the past weeks prompted the administration to forge ahead with the second phase of TRAIN, which will mean an increase in the fuel excise tax. Higher consumer prices will continue to dampen demand. Little improvement can be expected in consumer and business confidence.