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BSP says ‘stagflation’ not an immediate risk to economy

Amid concerns from rising commodity prices, the Bangko Sentral ng Pilipinas (BSP) on Thursday allayed fears that the Philippine economy will fall under “stagflation.”

Stagflation is an economic condition characterized by slow growth, high unemployment, and rising inflation.

In a statement, the BSP said that stagflation is not “an immediate risk to the Philippine economy.”

“The BSP is optimistic that the Philippine economy will sustain its recovery given the stronger-than-expected GDP growth of 8.3% in the first quarter of 2022,” the central bank said.

The war between Russia and Ukraine has been causing global crude oil prices to skyrocket, resulting in the increase in domestic pump prices for net importing countries such as the Philippines.

The rise in fuel and transport cost caused inflation to accelerate to 5.4% in May, with quicker spikes seen on the prices of vegetables, meat, and fish. 

However, the BSP said that the “steady upturn in credit activity, ample domestic liquidity, and favorable market sentiment should also help boost economic activity.”

The central bank added that consumer confidence has improved in the first quarter of 2022, while the country’s foreign direct investments (FDI) yielded net inflows in March.

Albeit at a 10-month low, the country’s FDI stood at a net inflow of $72 million in March, 9.8% lower than the $806 million recorded in the same month last year and the $893 million recorded in February. 

“Domestic labor conditions also continue to improve, with employment now approaching pre-pandemic levels following the easing of COVID-related mobility restrictions and sustained vaccination efforts. From a peak of 17.6% at the height of the pandemic in April 2020, the unemployment rate was down to 5.7% in April 2022,” the BSP said.

The central bank noted that while domestic inflation is seen to remain elevated in the near term, as a result of supply-side factors linked to volatile global commodity prices, inflation is expected to revert to the government's target range of 2% to 4% by 2023.

In the meantime, the balance of risks to the inflation outlook now leans toward the upside for both 2022 and 2023, it said.

“Given these considerations, the BSP reiterates its support for urgent and coordinated efforts of government agencies to ensure adequate domestic food supply,” the central bank said.

It said that direct and targeted interventions made by the national government will be critical in tempering the impact of persistent supply-side pressures on prices and wage-setting.

“The BSP will remain vigilant over emerging price and output conditions and will undertake necessary action to ensure that monetary policy settings remain appropriately calibrated, consistent with the BSP's price and financial stability mandates,” it added.—LDF, GMA News