Nine-year high Philippine inflation rate could hit OFWs’ pockets

Higher food prices, which make up more than a third of the consumer price index, had a major contribution to inflationary pressures in August. (AFP)
Updated 05 September 2018
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Nine-year high Philippine inflation rate could hit OFWs’ pockets

  • OFWs have benefitted from the peso’s weakness against the US dollar, but the gains might have been offset by the reduction of purchasing power
  • Remittances from overseas Filipinos in June fell to their lowest levels in three months to $2.61 billion

DUBAI: Filipino expats might have to consider increasing the money they send home, to help their families keep up with the unabated rise in prices of basic consumer goods, which has diminished whatever benefits they gained from the recent favorable exchange rate, analysts say.
“The higher inflation reduced the purchasing power of Overseas Filipino Workers (OFWs) and their families, eroding whatever OFWs gained from the higher US dollar/peso exchange rate that increased the peso equivalent of their remittances about 4.5 percent year-on-year and about 7 percent since the start of 2018,” Michael L. Ricafort, head of the economics and industry research division at Rizal Commercial Banking Corporation told Arab News.
OFWs have benefitted from the peso’s weakness against the US dollar, but the gains might have been offset by the reduction of purchasing power due to elevated inflation, Guian Angelo S. Dumalagan, market analyst at Land Bank of the Philippines, said.
“Using the inflation in August of 6.4 percent, OFWs and their families might just be better off by just 0.6 percent,” Dumalagan told Arab News.
The government on Wednesday reported that headline inflation rose by 6.4 percent year-on-year in August – the highest in nine years – from 5.7 percent a month earlier and 2.6 percent in August last year. The August inflation rate also exceeded the 5.9 percent forecast given by Philippine monetary and finance authorities.
Remittances from overseas Filipinos in June meanwhile fell to their lowest levels in three months to $2.61 billion, 5 percent down from $2.75 billion of the same month last year. Monetary authorities said the biggest declines in cash remittances were recorded in the United Arab Emirates, Saudi Arabia and Kuwait during the said period.
“An unfortunate confluence of cost-push factors continues to drive consumer price inflation in August beyond the acceptable target range. Much of it has to do with food supply shocks, rice in particular. These warrant more decisive non-monetary measures to fully address,” Nestor Espenilla, Jr, Governor of the Bangko Sentral ng Pilipinas, said.
“We also need to consider external developments and US Fed actions to the extent these exert undue pressure on the peso. Under the circumstances, we will weigh the need for further monetary policy action,” the central bank governor added.
Higher food prices, which make up more than a third of the consumer price index, had a major contribution to inflationary pressures in August. The retail prices of rice were up by at least 10 percent year-on-year, pushed by a shortage of cheaper rice in the market; corn prices were up by as much as 20 percent in some areas of the country; sugar prices rose as much as 20 percent since the start of the year.
“The government, particularly the Department of Agriculture, must act quickly and fervently with a sound judgment to ease the increasing prices of agricultural commodities which are the main drivers of inflation,” Socioeconomic Planning Secretary Ernesto M. Pernia said. “The NFA should fast-track the distribution of remaining inventories, alongside the completion of the government’s 250 thousand MT rice imports from Thailand and Vietnam in the last week of August to build its rice inventory, a necessary step to temper inflation.”
The National Food Authority is a government agency responsible for ensuring food security in the Philippines and the stability supply and price of rice, the country’s main staple. Aside from shipping in more rice, the government is also planning to import fish, particularly round scad, as some municipal waters impose fishing bans in their areas between October to February and allow fish stocks to be replenished.
The analysts are however hopeful that inflation levels might have peaked in August, and would begin to taper off by the end of the year.
“It is possible that the higher-than-expected inflation rate of 6.4 percent in August is already the peak and the inflation rate for the remaining months of 2018 could be slower and linger at or near 6 percent levels, before easing to between 4 percent and 5 percent in the early part of 2019,” Ricafort said, as the residual effect of the new tax law implemented in January eases.
“Efforts of government to address supply issues should eventually moderate price pressures. But the impact of second-round effects would still have to be reflected in production costs and retail prices,” ING Bank senior economist Joey Cuyegkeng said.
Former president and current House of Representatives Speaker Gloria Macapagal Arroyo, who is also an economist, also said the high inflation rate should not be a cause for alarm as “the government was doing what it can do to address it.”
“Hopefully this will be the peak. Conceivably even a sharp increase can be resolved, but we have to analyze what is driving it and therefore address what is driving it,” Arroyo added.


Dubai real estate market recovery to be seen as of 2022: S&P

Updated 20 February 2019
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Dubai real estate market recovery to be seen as of 2022: S&P

  • The outlook on property was part of a challenging assessment of the credit-worthiness of the emirate
  • S&P was generally comfortable with the credit ratings of the emirate’s banking system

DUBAI: S&P Global, the ratings agency, painted a grim picture for the real estate sector in Dubai, with a meaningful recovery in property prices expected only after 2022.
At a presentation to journalists in the Dubai International Financial Center, S&P analyst Sapna Jagtiani said that under the firm’s “base case scenario,” the Dubai real estate market would fall by between 5 and 10 percent this year, roughly the same as the fall in 2018, which would bring property prices to the levels seen at the bottom of the last cycle in 2010, in the aftermath of the global financial crisis.
“On the real estate side we continue to have a very grim view of the market. While we expect prices to broadly stabilize in 2020, we don’t see a meaningful recovery in 2021. Relative to the previous recovery cycle, we believe it will take longer time for prices to display a meaningful recovery,” she said.
S&P’s verdict adds to several recent pessimistic assessments of the Dubai real estate market. Jagtiani said that conditions in the other big UAE property market, in Abu Dhabi, were not as negative, because “Abu Dhabi never did ramp up as much in 2014 and 2015 as Dubai.” S&P does not rate developers in the capital.
She added that a “stress scenario” could arise if government and royal family related developers — such as Emaar Properties, Meraas, Dubai Properties and Nakheel — which have attractive land banks and economies of scale, continue to launch new developments.
“In such a scenario, we think residential real estate prices could decline by 10-15 percent in 2019 and a further 5-10 percent in 2020. In this case, we expect no upside for Dubai residential real estate prices in 2021, as we expect it will take a while for the market to absorb oversupply,” she said.
S&P recently downgraded Damac, one of the biggest Dubai-based developers, to BB- rating, on weak market prospects.
However, Jagtiani said that, despite the “significant oversupply” from existing projects, several factors should held stabilize the market: Few, if any, major product launches; improved affordability and “bargain hunting” by bulk buyers; and a resurgence of Asian, especially Chinese, investor interest in the market.
Jagtiani also said that government measures such as new ownership and visa regulations and reduction in government fees could help prevent prices falling more sharply, as well as “increased economic activity related to Dubai Expo 2020, which is expected to attract about 25 million visitors to the emirate.”
The outlook on property was part of a challenging assessment of the credit-worthiness of the emirate. “In our view, credit conditions deteriorated in Dubai in 2018, reducing the government’s ability to provide extraordinary financial support to its government related entities (GREs) if needed,” S&P said in a report. “The negative outlook on Dubai Electricity and Water
Authority (DEWA) partly reflects our concern that a real estate downturn beyond our base case could out increased pressure on government finances,” the report said.
It pointed out that about 70 percent of government revenues come from non-tax sources, including land transfer and mortgage registration fees, as well as charges for housing and municipality liabilities, as well as dividends from real estate developers it controls, like Emaar and Nakheel.
S&P was generally comfortable with the credit ratings of the emirate’s banking system, which has an estimated 20 percent exposure to real estate. “Banks in the UAE tend to generally display a good level of profitability and capitalization, giving them a good margin to absorb a moderate increase in risks,” the report said.