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Rodrigo Duterte’s inflation problem

Inflation in the Philippines has doubled over the past year to hit 6.4%. People are losing confidence in strongman president Rodrigo Duterte’s ability to tackle the problem.

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Rodrigo Duterte can't force prices lower

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Inflation could turn out to be Filipino president Rodrigo Duterte's toughest foe, says Clara Ferreira Marques on Breakingviews. Inflation in the Philippines has doubled over the past year to hit 6.4%, its highest level since 2009 and well above the government's target of 2%-4%. People are losing confidence in the strongman's ability to tackle the problem.

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The government's tax reforms have driven up prices for petroleum and sugary drinks. Duterte's aim is to bolster annual growth from 6% to 7%-8%, but "the effort is sputtering".

In contrast, China's economy is growing at a similar pace but with inflation closer to 2%. A strong US dollar has depressed the peso, pushing up the price of imports, while the oil rally has increased the cost of fuel. This has left wages out of step with the rising cost of living. Personal income tax has been reduced, but the gain to consumers has been negated by pricier fuel, worsening inflation and dampening consumption.

To make things worse, the price of rice has gone up by a fifth from a year ago. More than half a million metric tonnes of paddy rice were wiped out by super-typhoon Mangkhut in September, driving up prices that were already at a record high, note Cecilia Yap and Ditas B Lopez on Bloomberg.

The worry now is that the central bank has been too slow to respond to these problems, and has fallen behind the curve the benchmark interest rate is only 4%. But it may be too soon to panic. The uptick in inflation [is] just "a temporary hiccup", reckons Lance Gokongwei, head of the conglomerate JG Summit, in the Financial Times. Moreover,"there is a genuine recognition that tough measures should be taken on rates". Investors may soon regain their confidence in one of the region's most promising markets.

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