‘Low inflation could create jobs’
Credit to Author: Mayvelin U. Caraballo, TMT| Date: Wed, 08 Jan 2020 16:19:03 +0000
A low inflation rate, which translates to accommodative monetary policy settings, can support job creation in the country, according to an analyst.
In a comment on Wednesday, Rizal Commercial Banking Corp. (RCBC) economist Michael Ricafort said a relatively lower consumer price growth rate supported a corresponding easing in interest rates, which could lead to reduced borrowing costs and help encourage more local and foreign investments in the country.
This, “in turn, [would] create more jobs/employment opportunities, as well as greater business opportunities, thereby increasing economic activities that lead to faster GDP [gross domestic product] growth,” he told The Manila Times.
His comments come a day after the government announced that the rate of the increase in the prices of goods and services accelerated to 2.5 percent in December from 1.3 percent the month before. Year to date, inflation hit 2.5 percent, compared with 5.2 percent in 2018.
Economists and analysts have traditionally looked at inflation and unemployment, particularly their relationship to each other, in determining the state of a country’s economy. It was belieived that if inflation rises, unemployment drops, and vice versa. But recent history has shown that this was not always the case.
As an example, Ricafort said the more-than-three-year-low 0.8-percent inflation rate last October, compared to the 6.7 percent posted a year earlier, supported local interest rate benchmarks to become among the lowest in about two to three years for most long-term tenors.
“As a result, these partly supported the strong Philippine employment data, [which were] among the best levels since revised records started 16-34 years ago,” he added.
Citing the latest jobs data, the RCBC economist said the country’s unemployment rate as of October fell to 4.5 percent, its lowest since 2003. It was also lower than the 5.4 percent posted last July and a year ago.
The underemployment rate as of October also improved to 13 percent, its lowest since since 1990.
The employment rate during the period, meanwhile, increased to a new record high of 95.5 percent, the highest since 1985.
“Thus, lower/benign inflation and the resulting relatively lower local interest rates help create a more conducive environment for faster Philippine economic/GDP growth, which is among the fastest among relatively larger countries worldwide and which has consistently grown at least 6 percent since 2012,” Ricafort said.
Going forward, the analyst said relatively benign inflation in the coming months or years would still help keep the unemployment rate among the lowest levels since revised records started in 2003.