Household spending is a major driver of growth in the Philippines. Breaking down household expenditure, we note that consumption of staple food accounts for 33% of household expenditure and 24% of total GDP. Hence, we expect food staples spending to help determine the direction and pace of growth in the coming months.
We initially expected spending on basic food items to recover as inflation moderates by mid-2023. However, the cost for these items is about the same. This trend can be explained by unexpectedly strong family spending on restaurants, with families consuming meals at home rather than dining out.
Another possible explanation could be linked to the slow growth of wages. Minimum wage increases for workers in the Capital Region averaged only 3.4% over the 10-year period, suggesting that households are cutting back on spending on select items to balance tight budgets.
A sharp increase in wages is unlikely until mid-2024, as wage changes are typically made once a year. Even if inflation remains within target, the outlook for modest wage growth suggests that household spending is unlikely to recover sharply next year.
Households will continue to allocate limited wages, and a possible pick-up in expenditure on food items may require reductions in expenditure on items such as „restaurants & accommodation” and „entertainment”.