The weak oil prices in the world market are causing the inflation rate to decelerate and emboldening investors to place their bet on the Philippine stock market.
The inflation rate in January slowed to 2.4 percent for a fifth straight month, mainly due to lower pump and food prices and reduced electricity rates. The stock market index, meanwhile, topped the 7,700-point mark for the first time Wednesday before retreating on profit-taking Thursday.
The combination of low inflation resulting from lower gas prices, transport fares and electricity rates and surging stock market is the ideal environment for businesses to flourish. A low inflation regime trims the risk of doing business in an oil-dependent country like Philippines and makes planning easier. A more stable business environment, in sum, will assure financial targets are met, with little X factors such as volatile oil prices to consider.
The bullish sentiment in the stock market is a confirmation of a good business environment, as reflected by the low inflation rate and, lately, the appreciating peso. Stock market investors believe their money in stocks will yield good returns in anticipation of healthy corporate earnings. They also speculate that business expansions and the potential for increased profits amid the regime of low prices will make their investments more worthwhile.
But the current business environment, especially the weak inflation rate, could change as fast as the decline in world oil prices. Crude prices can reverse their course in a few months, depending on the appetite of major economies like China and key developing countries like India and Brazil.
Economic Planning Secretary Arsenio Balisacan, for one, concedes there are still risks to a manageable inflation rate. Says Balisacan: “The lingering possibility of El Niño occurrence in the first quarter of 2015 and power woes remain an overhanging concern and must be holistically addressed.”
The current favorable economic climate will not likely change overnight, but authorities must plan against the unexpected to lessen the shock on consumers.