Philippines now facing rising stagflation risks

By Justine Irish D. Tabile, Senior Reporter

STAGFLATION is now evident in the Philippines, an analyst said, as inflation accelerated to 7.2% in April while economic growth is expected to come in below 4% in the first quarter.

Patrick M. Ella, portfolio manager and economist at Sun Life Investment Management and Trust Corp., said the over three-year-high inflation print coupled with expected sub-4% first quarter growth already points to stagflationary conditions.

“Stagflation is classically defined as negative economic growth and high inflation. But for Philippine standards, sub-4% is already, I think, stagflationary conditions for a high-growth economy like us,” he told Money Talks with Cathy Yang on One News on Tuesday.

The Philippine Statistics Authority on Tuesday reported that inflation rose to 7.2% from a year earlier, much faster than the 4.1% in March and 1.4% in the same month last year.

This was the fastest headline print since the 7.6% seen in March 2023, and also well-above the central bank’s 5.6%-6.4% estimate for the month.

“This is the highest (inflation) in three years, and I, in fact, looked at the monthly gain, and it is over 2.7%, which is quite high. So yes, stagflationary conditions are already evident,” Mr. Ella added.

He said economists have very low expectations for gross domestic product (GDP) growth in the first quarter, with his own estimate at 2.5%.

A BusinessWorld poll of 21 economists and analysts last week yielded a median estimate of 3.4% for the Philippine GDP growth in the first quarter.

If realized, GDP growth will be slower than the revised 5.4% expansion in the same period a year ago and fall short of the government’s 5-6% target this year.

First-quarter GDP data will be released on Thursday (May 7).

Mr. Ella said the factory activity will likely remain weak after the S&P Global Philippines Manufacturing Purchasing Managers’ Index fell to 48.3 in April, its first contraction in five months.

“I think that is expected to continue because of the huge input costs we saw in the last two months,” he said.

Other economists, however, cautioned against labeling the current environment as stagflation. Marco Antonio C. Agonia, an economist at the University of Asia and the Pacific, said the term is “too strong” to describe the situation.

“We use ‘stagflation’ in describing double-digit inflation, unemployment and negative GDP growth figures. What we’re seeing now is a combination of the lingering impacts of the flood control scandal and a global oil shock,” he said.

He said the definite stagflation scenario depicts a prolonged string of negative or near-zero GDP growth along with double-digit inflation and unemployment.

“The last time the Philippines fit that profile was during the political and economic turmoil of the 1980s. For now, the economy is downbeat but somewhat stable and with robust jobs performance,” Mr. Agonia said.

“Besides, we may see faster growth in the second half of this year when government infrastructure spending returns,” he added.

The unemployment rate fell to a two-month low of 5.1% in February, down from 5.8% posted in January but higher than the 3.8% reading in the same month last year.

March jobless data will be out on May 6.

Jonathan L. Ravelas, senior adviser at Reyes Tacandong & Co., said the April inflation print is “a yellow flag, not a red card.”

“This isn’t stagflation yet… inflation remains sticky — mainly due to food and utilities — but economic growth has not stalled and employment is still holding up,” he said.

“What we’re seeing is inflation fatigue, not stagnation. The key now is targeted supply-side fixes, especially on food, rather than overly aggressive tightening. The risk is real, but it’s still manageable,” he added.

On the other hand, Ser Percival K. Peña-Reyes, senior research fellow at the Ateneo Center for Economic Research and Development, said the country is showing early warning signs of stagflation.

“If high inflation persists, and growth weakens further, then it could tip into genuine stagflation,” he said. “Nevertheless, right now, it is more accurate to say that the Philippines is experiencing a shock-driven inflation surge with softening (not stalled) growth and rising (but not yet realized) stagflation risk.”

He said a true stagflation scenario would mean at least two consecutive quarters of inflation above 5-6%, GDP growth below 2%, rising unemployment, falling real wages, and stagnant investment — all happening simultaneously.

Meanwhile, Asian Development Bank Chief Economist Albert Park said the Philippines’ prospects should not be discounted too quickly, noting the country and other economies in the region have been the “most resilient and dynamic part of the global economy.”

“I think they may need some help getting through this period of adjustment, but the fundamentals still, I think, are in the right direction,” he said in an CNBC interview on Tuesday, citing the Philippines’ big investments in infrastructure and renewable energy.