The Bangko Sentral ng Pilipinas (BSP) does not view ‘stagflation’ – an economic condition characterized by slow growth, high unemployment, and rising inflation – as 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 percent in the first quarter of 2022. The steady upturn in credit activity, ample domestic liquidity, and favorable market sentiment should also help boost economic activity. Consumer confidence has improved in Q1 2022, while the country’s foreign direct investments yielded net inflows in March.
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 percent at the height of the pandemic in April 2020, the unemployment rate was down to 5.7 percent in April 2022.
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 percent by 2023. In the meantime, the balance of risks to the inflation outlook now leans toward the upside for both 2022 and 2023.
Given these considerations, the BSP reiterates its support for urgent and coordinated efforts of government agencies to ensure adequate domestic food supply. 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.
