Finally, measures of core inflation are less sticky today compared to 2009, which implies a higher risk of second round effects materialising from low realised inflation and falling inflation expectations. This in turn creates a higher likelihood that, absent policy action, low inflation will become entrenched and will not bounce back when oil prices normalise.
Our model on the Philippine business cycle shows that the downward phase of the country’s business cycle reached its turning point in the last quarter of 2006. Thus, we are now in the continuing upward phase of the business cycle, as validated by the strong growth of the economy posted in the first three quarters of 2007.