Rodrigo Duterte’s inflation problem

915_MW_P06_Markets_Bottom — Rodrigo Duterte can't force prices lower

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.

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.

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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.

Marina Gerner is an award-winning journalist and columnist who has written for the Financial Times, the Times Literary Supplement, the Economist, The Guardian and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany.

Marina is also an adjunct professor at the NYU Stern School of Business at their London campus, and has a PhD from the London School of Economics.

Her first book, The Vagina Business, deals with the potential of “femtech” to transform women’s lives, and will be published by Icon Books in September 2024.

Marina is trilingual and lives in London.