A faster inflation rate partly reflects the strong domestic demand and the country’s capacity to sustain its economic growth in the coming years, according to a Cabinet official.
“This might sound insensitive to many of us, to see inflation as a way to prepare for the future, but to us and the builders of the nation, a certain level of inflation will help the economy to expand and grow resilient,” said Trade Secretary Ramon Lopez.
“And what should be highlighted, of all things, is that growth is here and is coming into play,” said Lopez.
What is even better, according to Lopez, is that inflation is being used to drive the importation of goods for the ‘Build, Build, Build’ infrastructure program and the public-private partnership projects.
He said capital and intermediate goods were now in great demand, with the ongoing big-ticket infrastructure projects.
The appetite to bring in capital and intermediate goods was fueled by the increasing foreign direct investments in the country, he said. Capital and intermediate goods are the raw materials for production.
“Every Cabinet members understand these are all capital expenditures for future expansion, so higher inflation is okay. For instance you can expect that in any manufacturing project, one needs to invest for capital equipment heavily. We want to build our manufacturing. This is the right time,” the trade chief said.
What is important at this juncture, he said, is that growth borne out of inflation was going to a productive activity, instead of driving consumption.
The government sees more capital expenditures to boost economic activities. This will also help prop up exports, he said.
“We need continuous growth for manufacturing as contributor to the gross national product. Admittedly, we were not able to invest in manufacturing. More investments in capital equipment will help boost and build and export economy,” said Lopez.
As inflation rate hit a five-year high of 5.7 percent in July, the government expects a gradual deceleration in the coming months.
“We just have to highlight that, so far, the trajectory of inflation had been good. Coming from a meeting on inflation updates, we noticed that month-on-month, it has been a declining trend. The aberration in June has something to do with food basket. I learned that it was benchmarked to 2017,” said Lopez.
The way to view inflation, he said, is not to compare it on an annual basis. Rather, one should look at its development on a monthly basis and see if it was improving.
The government is optimistic that inflation wouyld settle at a level comfortable for most industries.
The Trade Department conducts market monitoring activities on monthly basis to ensure that no manufacturer or retailer imposed higher pricing than the suggested retail price especially during times of calamities.
The agency intensified its monitoring in July from 400 stores to 600 stores per week in the National Capital Region and additional 500 more accounts outside Metro Manila. It also expanded its SRP list from 171 SKUs to 225 SKUs as of July 16.
Among the basic necessities the department monitors regularly are canned sardines in tomato sauce, processed milk, coffee refill, bread, instant noodles, salt, detergent/ laundry soap, bottled water and candles.
Monitored products under prime commodities are canned meat and canned beef, condiments, toilet soap and batteries.
It said that of the 175 BNPCs monitored, only 41 products recorded SRP increase and represented 23.43 percent.
Lopez said like the rising inflation rate, the peso depreciation would also be a boon for some industries. “Even the depreciation of the foreign exchange is now preparing for the future. It may not be a god thing to hear, but it’s a not bad to have a depreciating peso. Even the central bank pointed out there is net appreciation. If you look at the nominal forex rate, ours depreciated. But if you compare the depreciation among other currencies, there is net appreciation for the peso,” he said.
He said the government even wanted the peso’s value to go down a bit further to allow industries to be competitive.
“For us, we’re trying to push for more exports. What we can do for our forex is to let it seek its level, find its market value and not control it. Much depreciation is more investment that translates to more manufacturing,” he said.
Lopez said while imports was expected to keep growing, it would eventually support the export sector.
“So let it [peso] be depreciated. Our exports are not good now. We can have gradual depreciation, but it should be indexed with inflation,” Lopez said.
