Aug. 27 (Bloomberg) -- Rommel Miel’s printing shop in Manila should be basking in the rising demand from one of Asia’s fastest growing economies. Instead, he’s struggling to keep his two-year-old business afloat.
“Business is good, but we’ll be forced to increase our prices just to survive,” said Miel, 39, as he sorted new orders in his shop, surrounded by stacks of T-shirts in clear plastic sleeves. “Our margins are shrinking, and the odds are now against us,” he said, explaining that costs of some raw materials have surged as much as 50 percent this year.
Miel’s plight underscores the challenge for President Benigno Aquino in his final 22 months in office, as the fastest inflation in almost three years undermines the benefits of economic growth that probably exceeded 6 percent last quarter. As the central bank takes steps to contain price gains, Aquino is under pressure to reinvigorate delayed infrastructure projects and relieve the supply bottlenecks that have pushed up food costs.
“If this inflation momentum is maintained, companies would be forced to transfer costs to consumers and that would generate second-round effects,” said Eugenia Fabon Victorino, a Singapore-based economist at Australia and New Zealand Banking Group Ltd. “This dynamic will be painful and should be taken by the Aquino government as an impetus to speed up its infrastructure program. Investment in transport and roads will unlock economic potential.”
Gross domestic product probably rose 6.1 percent last quarter from a year earlier, according to the median estimate of 22 economists surveyed by Bloomberg News. That compares to growth of 5.6 percent in the three months through March, the weakest pace since 2011, according to revised data released today.
Aquino is seeking to ensure his efforts to overhaul the economy last beyond the single six-year term he’s allowed by law, as his popularity slides and faltering government spending threatens his goal of as much as 7.5 percent annual growth. The central bank raised the benchmark interest rate in July for the first time in three years, and said it is ready to deploy any policy action needed to ensure price gains remain within target.
Inflation more than doubled in less than a year to 4.9 percent in July, after Super Typhoon Haiyan struck the nation in November and an expanded truck ban implemented in Manila in February delayed shipments. Food prices surged 8.2 percent in July from a year earlier, the fastest pace since 2009.
Bangko Sentral ng Pilipinas raised its key rate to 3.75 percent last month from a record-low 3.5 percent. It increased the rate on special deposit accounts in June, and has raised the reserve requirement ratio twice this year. The monetary authority may increase the benchmark rate to 4 percent by the end of the year, most economists in a Bloomberg survey forecast.
Aquino has asked state agencies to fast-track efforts to curb prices, and officials have taken steps to ease congestion in ports caused by the truck ban. An auction today for 500,000 metric tons of rice failed after all four bidders submitted offers that were higher than the budget of the National Food Authority, said Efren Sabong, head of the bids committee.
Aquino’s approval rating slipped to a low of 55 percent in the second quarter from 66 percent in the previous period, according to research firm Social Weather Stations. In an interview with local news channel TV5 earlier this month, the president said he may consider seeking changes to the constitution to curtail judicial powers and let him seek another term.
The peso rose 0.3 percent to 43.67 per dollar as of 3:48 p.m. local time, according to Tullett Prebon Plc. Stocks closed 0.2 percent higher.
Rising remittances, exports and a surge in manufacturing are helping support the Philippine economy. Funds sent home from abroad gained 5.9 percent in June from a year earlier while exports increased 21.3 percent the same month.
Manufacturing production volume rose 13 percent last quarter from a year earlier, compared with a 4.3 percent gain in the previous three months, according to finance department data released last week.
Growth has been uneven elsewhere in the region. Malaysia’s expansion unexpectedly accelerated to the fastest pace in six quarters on surging exports, while Indonesia’s eased to the slowest since 2009 last quarter.
The Philippine economy is forecast to expand 6.3 percent this year, the fastest in Asia after China, according to a Bloomberg survey. While rising incomes are benefiting companies including SSI Group Inc., the nation’s largest retailer of luxury goods, surging costs are squeezing small businesses like Miel’s printing shop.
“Customers are always looking for cheaper providers, so I’m worried what will happen once we raise prices,” Miel said. “The next few months are typically our busiest season. I’m hoping it’ll still be a merry Christmas.”
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