By Katherine K. Chan, Reporter
HIGH CONSUMER PRICES have offset the supposed benefits of a weaker peso on overseas Filipino workers’ (OFW) remittances, risking even weaker household spending this year, a report from United Kingdom-based think tank Pantheon Macroeconomics showed.
“High inflation is muting the pass-through of faster growth of transfers in peso terms, as in 2022,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco and Asia Economist Meekita Gupta said in the report published on Monday.
Inflation remained above the Bangko Sentral ng Pilipinas’ (BSP) 3% target for a sixth straight month at 6.1% in August.
According to Pantheon Macroeconomics, the Philippines has seen annual remittance growth in peso terms accelerate sharply to a double-digit pace from below 3% in February since the Middle East war weakened the local currency.
However, red-hot inflation has prevented the peso-based surge in remittance inflows from translating into stronger domestic consumption, the economists added.
“More importantly, from the standpoint of domestic economic growth, year-over-year remittance growth in peso terms has accelerated significantly since early this year, one of the silver linings of the currency’s postwar struggles,” Mr. Chanco and Ms. Gupta said.
“Growth in these terms shot up to double-digits in May from under 3% in February, where it has been since, with the simultaneous jump in inflation the only real major reason that local sales growth hasn’t followed suit as vigorously. The offsetting impact of higher inflation has echoes of what transpired in 2022,” they added.
In July, cash remittances from OFWs soared to its highest monthly level this year partly due to the weaker peso boosting the value of dollar-denominated remittances in the local currency.
The peso plunged to as low as P61.847 against the greenback on July 24, averaging 8.54% or P4.844 weaker year on year at P61.5963 during the month.
Cash remittances rose by an annual 1.9% to a seven-month high of $3.24 billion that month from $3.179 billion.
“Remittances in the Philippines have disappointed almost continuously this year, with year-over-year growth more than half of its latest peak of 4.2% in December last year, to 1.9% as at July, the latest data,” Mr. Chanco and Ms. Gupta said.
“Part of the reason is misfortune and out of policymakers’ hands, with the geopolitical turmoil in the Middle East having a substantial effect on historically vital cash transfers from that region,” they added.
BSP data showed that the growth of remittance flows from Middle East-based Filipinos eased in July, with those from Saudi Arabia slowing to 1.3% from 2.8% in June, the United Arab Emirates to 1% from 2.5%, and Qatar to 2.1% from 2.8%.
As heated inflation weakens purchasing power, Mr. Chanco and Ms. Gupta noted that households receiving remittances have been reallocating a higher share of their funds toward nondiscretionary basic goods, but pulling back in education spending.
“If remittance growth in dollar terms recovers unexpectedly in the next few quarters, keeping growth higher on a peso basis as the stickiness in inflation naturally subsidies, then this should help turn the miserable ship of private consumption around,” they added.
Still, they noted that restrained household spending, especially with consumer confidence still bleak, may keep overall economic momentum tepid until next year.
“In all, we are still comfortable with our below-consensus GDP (gross domestic product) growth forecasts of 2.8% and 4.0% for 2026 and 2027, respectively, with private consumption — the economy’s main engine — likely to remain restrained,” they said.
FASTER INFLATION IN SEPTEMBER?
Meanwhile, Japan-based Nomura Global Markets Research sees inflation blowing past 7% in September at 7.1%.
“We expect headline inflation to rise significantly to 7.1% year-on-year in September from 6.1% in August, driven by a pickup in food prices, particularly for rice and vegetables due to weather-related disruptions,” Nomura Research Analyst Jing Wang said in an Oct. 2 report.
“In addition, retail fuel prices have also been adjusted higher, in line with resurgent crude oil prices,” he added.
Two tropical cyclones and the southwest monsoon brought heavy rainfall and flooding in parts of the country last month, disrupting local agricultural supply.
Rice prices nudged higher in September, with a kilo of regular milled rice up 24.58% year on year to P49.97 in the second half of the month, while well-milled rice jumped by 18.74% to P56.07.
Meanwhile, pump price adjustments last month stood at a net increase of P14.39 per liter for gasoline, P14.48 per liter for diesel, and P12.83 per liter for kerosene.
This pushed the cost of diesel in Metro Manila and nearby areas to as much as P106 per liter, gasoline at P111 per liter, and kerosene at P141 per liter.
If Nomura’s projection holds true, September will snap the four consecutive months of easing inflation as the headline print moves to its fastest in five months or since the 7.2% in April.
Nomura’s estimate is also faster than the 6.7% median forecast for September inflation of the 22 analysts polled by BusinessWorld last week.
However, it falls within the BSP’s 6.4%-7.4% forecast for the month.
On the other hand, Mr. Wang said Nomura also expects core inflation to quicken due to pass-through effects after two straight months of deceleration.
Core inflation, which strips out volatile food and oil prices, could pick up to 4.3% in September from 4.1% in August and 2.6% a year ago, according to Nomura.
The Philippine Statistics Authority will publish the September inflation report on Tuesday, Oct. 6.
Nomura sees Philippine headline inflation averaging 5.8% by yearend before cooling down to 3.4% next year, softer than the BSP’s 6.1% and 5.4% estimates, respectively.
