Typhoons could add 0.6 ppt to Philippine inflation — IMF

TYPHOONS are expected to add up to 0.6 percentage point (ppt) to Philippine inflation due to disruptions to supply chains and agriculture, according to the International Monetary Fund (IMF).

In a report following its Article IV Consultation with the Philippines, the IMF said: “Staff analysis suggests that climate shocks, operating through supply, demand, and expectation channels, increase inflation by up to 0.6 percentage point (annualized) in a typical year, and disproportionately impact the agriculture sector, pushing up food prices,” it said.

This year, the Philippines was hit by 23 tropical cyclones, leaving billions of pesos in damage, according to the government weather service, the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA).

PAGASA said in a typical year, the Philippines will endure the transit of about 20 typhoons.

In the report, the IMF projected Philippine inflation this year of 1.7%, upgrading an earlier estimate of 1.6%. For 2026, it expects inflation to settle at 2.8%, up from its earlier view of 2.6%. 

Headline inflation began to pick up to 1.5% in August as multiple weather disruptions drove food prices higher. During that period, three storms and the southwest monsoon left at least P4.86 billion worth of agricultural damage.

Inflation accelerated further to 1.7% in September and October amid lingering effects from the typhoons, before easing to 1.5% in November.

This brought average inflation to 1.6%, in line with the Bangko Sentral ng Pilipinas (BSP) full-year forecast but slightly above the IMF’s latest estimate.

The IMF said the temporary inflation spike will be a consideration when the BSP decides on monetary policy.

“While accommodating some of the shocks risks triggering a rise in inflation expectations, tightening monetary policy to keep inflation at target would raise the cost of capital, which can delay reconstruction and pose a greater loss in output,” it said. “Faced with these trade-offs, the BSP should accommodate a temporary spike in inflation while containing any increase in inflation expectations.”

It added that the government could opt to reduce tariffs on food imports to curb the possible impact of such trade-offs.

Meanwhile, the IMF also noted that weather disruptions trim gross domestic product (GDP) by 0.2-0.3% yearly.

“Typhoons are the most frequent natural disasters in the Philippines, causing recurring economic losses — about 0.2-0.3% of GDP annually, mainly impacting agriculture — and contributing to higher inflation,” it said.

Philippine economic growth slumped to 4% in the third quarter, from 5.5% in the second quarter and 5.2% a year earlier, amid sluggish government and household spending.

The economy expanded by an average 5% at the end of September, below the government’s 5.5%-6.5% target.

Economy Secretary Arsenio M. Balisacan has said that the widespread cancellations of school, work, and travel due to the typhoons may have caused the slowdown in household spending during the period.

The IMF expects Philippine GDP growth to average 5.1% this year, a downgrade from its previous estimate of 5.4%. It also sees slightly slower expansion next year of 5.6% from 5.7% previously.

“Over the long term, the economic effects of climate shocks and trends are expected to increase, with climate models forecasting more intense typhoons and sea level rise causing economic losses reaching up to 2% of GDP annually in the absence of adaptation measures,” the IMF added. — Katherine K. Chan