THE Philippines’ manufacturing PMI posted a solid gain in October after months of subdued growth as new orders and output picked up, an IHS Markit/Nikkei survey found.
The poll of purchasing managers, however, also showed signs that a weakening peso was driving inflationary pressures up.
Results released on Thursday showed a seasonally adjusted Purchasing Managers’ Index of 53.7 for the month, up from September’s 50.8. It was still lower compared to the 56.5 posted a year earlier.
The PMI is a composite index representing the weighted average of five sub-components: new orders, output, employment, suppliers’ delivery time and stocks. Readings above 50 signal an expansion while readings below 50 signal a contraction.
“After two months of marginal growth, there was a flurry of activity in the Philippines manufacturing sector at the start of the fourth quarter,” IHS Markit economist Bernard Aw said.
The October PMI signaled a marked pick-up in the pace of improvements in operating conditions.
Demand for Filipino manufactured goods strengthened noticeably, with order book growth picking up to a five-month high following a trend of slower expansions.
Greater demand lifted production volumes, which in turn prompted firms to hire more workers.
Weaker peso impact
The survey, however, noted that the depreciation of the peso was putting pressure on prices.
The currency is currently trading above P51:$1, its worst level in over 11 years.
Cost increases were sharp, rising at the fastest rate since March as imported materials such as paper, fuel and industrial metals became more expensive.
To protect margins, firms hiked selling prices to the greatest extent in the survey history.
“Further weakening of the peso poses a problem for manufacturers, especially those that rely on imported inputs for production. Input cost inflation picked up sharply, which led firms to raise prices in order to preserve profit margins,” Aw said.
Also, charges for Filipino goods increased at the fastest rate on record, he noted.
Aw said this was a signal that inflationary pressures were building in the Philippines and suggested that consumer inflation may trend above the Bangko Sentral ng Pilipinas’ (BSP) expectations.
“That will compel the central bank to consider tightening monetary policy as early as this year,” he said.
The BSP — after lowering its reverse repurchase rate to 3 percent from 4 percent in May last year in the run-up to adopting an interest rate corridor system the following month— kept the policy rate unchanged during its last meeting in September.
It also kept the overnight deposit and lending rates steady at 2.5 percent and 3.5 percent, respectively. The reserve requirement ratio was also held at 20 percent.
Economists expect inflation to settle at 3.1 percent this year, slightly lower than the BSP’s full-year estimate of 3.2 percent.