Philippines concerns about future real income drag on consumption

Private consumption growth in the Philippines has slowed to its lowest rate since 2010 outside the pandemic period. The main culprit is worsening confidence, which has been hit particularly hard by persistent inflation. Although inflation should subside later in the year, the impact on consumer sentiment will take time to feed through, so we don’t expect a substantial boost in spending this year.

What you will learn:

• Consumer confidence has been worsening since mid-2022, particularly in the outlook component. Even though confidence in the current quarter has held up expectations about the future affect the present, as consumers tighten their wallets in anticipation of worsening economic conditions.
• Surveys show the uncertainty stems from concerns about future inflation. The nature of recent food-driven inflation also has implications for confidence, as households tend to feel the price impact from nondiscretionary daily items more acutely.
• We expect inflation to moderate after the summer given favourable base effects. However, disinflation is unlikely to boost spending substantially, and any uplift will take time due to the lagged nature of inflation expectations formation.
  Inflation expectations are also downwardly rigid and could stay elevated for longer because households care most about price levels, rather than annual growth rates.