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Positive drivers help lasso Philippines' inflation

Despite reaching 5.2%, July's Capital Markets Research report predicts inflation has peaked, dragged back by falling oil prices and rice imports.

Even though the nation’s infrastructure spend is booming, manufacturing growth is powering ahead and tax revenues are on the rise, inflation continues to rise.

First Metro Investment Corporation (First Metro) and University of Asia and the Pacific’s monthly report reveals inflation reached a nine-year high in June this year (up from 4.6% in May 2018), compounded by the weakening peso.

Pressure from the widening of the Philippines’ trade deficits resulted in the peso reaching its lowest level in 12 years. As of June 2018, it had fallen to P53.05 to the US dollar, marking the peso’s sixth consecutive month of depreciation.

While these headwinds are likely to continue to have an impact on investors, First Metro believes stable consumer sentiment combined with healthy revenue and spending will drive down the Philippine’s disappointing inflation rate, resulting in a tapering off of inflation in the third quarter of the year.

First Metro believes a slowing in rice imports, the nation's anticipated September harvest and US predictions of falling crude oil prices will all help put the brakes on inflation. However, the report also warns that if inflation fails to slow, consumer confidence will be eroded.

First Metro believes the government's gross domestic product (GDP) target of 7% is still achievable given robust local job creation and stable consumer sentiment.

To read the full report courtesy of First Metro please click here.


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