Inflation to average 3.8% this year – PIDS

Philippine consumer prices is seen to climb slightly in 2013 as the inflation rate is expected to average at 3.8 percent, according to the latest report of the state think tank Philippine Institute for Development Studies (PIDS).

The PIDS projection is within the 3-percent to 5-percent target of the Bangko Sentral ng Pilipinas for the year.

Inflation was moderate throughout 2012, as the average headline inflation rate for the entire year was 3.2 percent and is in the lower band of the government’s 3-percent to 5-percent target range, the PIDS Development Research News (DRN) said.

“Inflation will climb slightly this year as the economy deals with excess liquidity and strong domestic demand,” said the report’s authors PIDS President Josef Yap and Senior Research Fellow Adoracion.

The DRN also noted that the two more important external variables for the Philippine economy—international fuel and food prices—exert a strong influence on inflation.

It added that these variables along with the exchange rate are expected to remain stable in 2013.

However, the report also warned that the peso-dollar exchange rate will also be influenced by the weaker yen. In 2012, the price of foreign exchange in terms of US dollars continued to decline, and the peso continued to appreciate, it stated.

On the other hand, the DRN also mentioned that while overseas remittances are expected to remain at a high level, portfolio flows may decline slightly. In terms of credit ratings, it continued that the obsession of economic managers with favo­rable credit ratings must be tempered and instead, focus has to shift to the mediocre investment rate.

The publication further said that it is currently collaborating with the Department of Trade and Industry in crafting a Comprehensive Industrial Strategy for the Philippines.

“The policy recommendations from this study categorized as low hanging fruit can be implemented to spur investment in the short term, particularly in the manufacturing sector,” it said.

The DRN also suggests that small and medium enterprises must be the cornerstone of the revival of the manufacturing sector because they generate more employment.

“The medium term goal of such a strategy is significant product diversification,” it added. –Mayvelin U. Caraballo Reporter, Businessmirror