Philippines Macroeconomist/Strategist

Jun Trinidad

Macroeconomics

Philippines Stock Exchange PSEi Index (PCOMP INDEX)

Inflation rising (Feb: 3.9%YoY) in concert with the jobless rate edging down to 5.3% (Jan labor survey) depicted an active inflation-unemployment tradeoff. However upbeat job creation didn’t square well with fading average weekly work hours and a persisent core unemployment of more than 2mn. What this signaled is a less threatening wage inflation risk, which supports policymakers’ sentiment to not rush policy rate hikes.The Monetary Board also awaits the government’s response to anticipated strong demand by militant labor unions for wage relief from TRAIN’s inflationary impact. If no  government pledge materializes to hike workers’ pay by Php100/day or more by May Labor Day, BSP would have an additional reason to stay the course. And with most of the big-ticket public (e.g., railway projects) and private (unsolicited airport proposals) investment projects unlikely to be implemented in 1H18, employment stimulus that can heighten demand remains missing. Assuming some of these huge infrastructure projects get started in 2H18, prevailing demand catalysts (e.g., OFW remittances, BPO impact) will be reinforced. Alongside 2nd round price effects from the excise hikes and higher inflation expectations, sufficient arguments could exist to hike policy rates later this year. Understandably, PHP weakness will prevail regardless of the USD setting. Expanding inflation differentials with PH trading partners while lacking policy rate adjustments strongly suggests nominal PHP depreciation (52-53) as the appropriate market response. Fair market valuation issues will hound local equities with the prospective risk free rate (10yr yield) still uncertain although bid-offers are probing 6%, as market awaits policy rate adjustments.

Inflation rising (Feb: 3.9%YoY) in concert with the jobless rate edging down to 5.3% (Jan labor survey) depicted an active inflation-unemployment tradeoff. However upbeat job creation didn’t square well with fading average weekly work hours and a persisent core unemployment of more than 2mn. What this signaled is a less threatening wage inflation risk, which supports policymakers’ sentiment to not rush policy rate hikes.The Monetary Board also awaits the government’s response to anticipated strong demand by militant labor unions for wage relief from TRAIN’s inflationary impact. If no  government pledge materializes to hike workers’ pay by Php100/day or more by May Labor Day, BSP would have an additional reason to stay the course. And with most of the big-ticket public (e.g., railway projects) and private (unsolicited airport proposals) investment projects unlikely to be implemented in 1H18, employment stimulus that can heighten demand remains missing. Assuming some of these huge infrastructure projects get started in 2H18, prevailing demand catalysts (e.g., OFW remittances, BPO impact) will be reinforced. Alongside 2nd round price effects from the excise hikes and higher inflation expectations, sufficient arguments could exist to hike policy rates later this year. Understandably, PHP weakness will prevail regardless of the USD setting. Expanding inflation differentials with PH trading partners while lacking policy rate adjustments strongly suggests nominal PHP depreciation (52-53) as the appropriate market response. Fair market valuation issues will hound local equities with the prospective risk free rate (10yr yield) still uncertain although bid-offers are probing 6%, as market awaits policy rate adjustments.

Not Your Typical Unemployment-Inflation Tradeoff