MANILA -- Inflation in the Philippines has hit the highest level in nearly a decade, darkening the outlook for household consumption and overall economic growth in the third quarter.
Inflation in the first nine months of 2018 averaged 5%, the Philippine Statistics Authority said on Friday, a full percentage point above the central bank's target range of 2% to 4%. Inflation last month reached 6.7%.
Consumer prices have not risen this fast since February 2009, when the rate hit 7.2%. Among the key factors are rising prices of food, transport, alcoholic drinks and tobacco; overall food inflation is also at the highest level in almost a decade, largely due to dwindling stocks of subsidized rice.
President Rodrigo Duterte's economic managers, in a joint statement, tempered concerns by stressing there are "clear signs" that inflation would fall back within the target range by next year. "But we must couple this optimism with quick and focused actions in order to sustain gains made so far in keeping inflation in check," the statement read.
BSP Deputy Gov. Diwa Guinigundo said inflation may have already peaked last month, and that prices would start tapering off in October.
Nicholas Antonio Mapa, senior economist at ING Bank N.V. Manila, said consumer spending would likely slow down further and affect the country's overall output.
"Consumption will likely take a hit, given still above-target inflation and the 150 bps rise in borrowing costs," Mapa said. "This is one of the reasons we have lowered our GDP projections to 6.3% for the year."
Mapa predicted inflation would taper off going into the fourth quarter.
"We hope further nonmonetary policy measures begin to take root ahead of the Christmas season," he said. "On risks to the upside, oil prices remain elevated, which has been reflected in the recent price increases at the pump."
The Bangko Sentral ng Pilipinas, the central bank, has cumulatively raised its benchmark interest rates by 150 basis points in four meetings this year, to 4.5%, the highest in nearly a decade. The BSP said the rate hikes were necessary to rein in inflation expectations and prevent producers from passing along rising costs to consumers.
The price pressure has already hit the Philippines' growth, which came to 6% in the second quarter, the slowest in three years. Household spending, the economy's main driver, has declined for two quarters in a row as shoppers feel the bite of rising costs and President Rodrigo Duterte's tax increase.