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Philippine inflation quickens in June, hits five-year high

Philippine inflation quickens in June, hits five-year high

The prospect of a third interest rate hike in 2018 is nearing in the Philippines after annual inflation quickened in June to hit the highest rate since 2013, new data published on Thursday showed.

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By Staff Journalist 06.07.2018

The prospect of a third interest rate hike in 2018 is nearing in the Philippines after annual inflation quickened in June to hit the highest rate since 2013, new data published on Thursday showed. The rise is partly due to the growing cost of non-alcoholic drinks and food. 

The consumer price index climbed to 5.2% for the month, which is 0.4% ahead of the forecast made by leading economists at Reuters in a poll earlier this year. The inflation rate during the first six months of 2018 was 4.3%, and there are no signs that conditions will drastically change soon.

The central bank in the Philippines set out a 4% maximum limit for its comfort range for this year and 2019. The uptick in June marked the fourth successive month that it has exceeded this figure, which means that a third interest hike in as many months is possible amid growing economic uncertainty in the region.

There are several factors that are currently driving up inflation, including higher taxes on commodity items such as fuel, a weakening of the peso and unyielding oil prices around the world. The central bank already made moves in May and June to hike interest rates and could interfere again now that inflation has hit its highest level in five years.

The bank recently insisted that a more stringent monetary policy is necessary to rein in inflation expectations, even though the recent uptick in consumer prices is mostly due to supply and demand dynamics.

Increasing interest rates would be in the best interests of the ailing peso, which is down around 7% against the dollar compared to earlier in the year. Asia Pacific currencies have struggled recently, but the peso is currently one of the worst-performing in the whole region.

The Philippines has external deficits, so it is under pressure to ditch lower interest rate settings to ensure that there is not a large-scale exodus of capital as investors look for higher-yielding assets. The country follows the US Federal Reserve’s policy in this regard. Any further moves are unlikely to happen until early August, when the central bank convenes to review its policy.

In other economic news, China is hoping to offset concerns about trade conflicts by looking closer to home. The official China Daily said on Thursday that new incentives will soon arise to encourage enterprises to do more to create and maintain jobs to stave off challenging employment conditions.

"No jobs means no wealth creation and possibly less social stability,” Premier Li Keqiang said during a State Council meeting midweek. To improve employment rates, the focus will be on helping college graduates, veterans and those made redundant to find new work while offering better vocational training.

New measures to support a more flexible and scalable workforce are in the drafting stage. There is a desire to bring down labor costs, reduce red tape and other time-consuming and resource-heavy activities for corporations and build cultures centered around more flexible terms of employment.

The outlook is not a major concern just yet, however. The China Daily report sourced figures from the human resources ministry in China that showed record levels of job creation during the first five months of 2018. Just over six million new roles came into effect between January and June, which was a significant increase on the figure from a year ago.

Singapore also revealed on Thursday that there have been 7,800 new jobs created in the financial industry during the last two years and that it would exceed a target of 8,000 by year’s end.

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