The Bangko Sentral ng Pilipinas (BSP) has released statistics regarding inflation for the month of June.  The numbers include negative inflation or deflation.  Deflation generally happens when demand for commodities drops to the point that prices begin to fall.  It is generally seen as a negative in an economy.

I’m inclined to think that for the average expat this is not great news.  Though it will mean our Philippine Peso will purchase more it will apply downward pressure on the value of the dollar in relation to the peso.  I’m not certain on this though.  Strong deflation is not seen as a positive thing.  If demand falls, people loose their jobs and an economy in a depression I do not believe can be conducive to a strong currency.    However, I have not yet come to understand why a currency would devalue when it is not being spent.

The BSP seemed to be indicating that it may not cut interest rates further when it next meet but indicated further that should growth fall, that would be a reason to cut rates again, despite the low or negative inflation.

The dollar has been hanging around P48 peso for a while now.  It seems to inch down just a bit and then back up and continue to hover around P48 to 1 US Dollar.

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Filed under: Living In The Philippines

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