[In This Economy] Stagflation by any other name would smell as bad

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On May 7, Socioeconomic Planning Secretary Arsenio Balisacan was asked at a press conference whether the Philippines had slipped into stagflation. His reply: “I don’t see it that way.” Inflation was being managed, he said. Growth had merely “slowed down a bit.” With “structural reforms” underway, the growth momentum would return in time.

A few weeks, his boss said the opposite. In a roundtable with Japanese reporters on May 19, President Ferdinand Marcos Jr. acknowledged that stagflation is precisely the worry. “To the economy, the concern that we have is the concern about stagflation,” he said, “so this is what we have been trying to control.” Marcos even signaled that the government might let prices of “non-critical” food items rise, because suppliers are “feeling the pinch.”

This is not the first time that President Marcos indirectly disagreed with his economic managers. I recall that, a few years ago, former finance secretary Benjamin Diokno said the debt-GDP ratio was “not worrisome,” even as President Marcos flagged it as an emerging concern.

So which is it? Are we in a stagflation episode or not?

What the numbers actually say

Let’s start with the data. In the first quarter of 2026, GDP grew 2.8% year-on-year, the slowest non-pandemic print since the global financial crisis. It is the third straight quarter of deceleration.

By contrast, headline inflation accelerated from 2.0% in January to 4.1% in March, then jumped to 7.2% in April. That’s the fastest in three years, and the biggest month-on-month inflation jump in 21st-century Philippine history.

Stagflation is a portmanteau of slowing growth or “stagnation” coupled with persistent, accelerating “inflation.” Secretary Balisacan is technically correct that there is no universally agreed numerical threshold.

But judging by what we’re experiencing right now, I would say that we’re already experiencing stagflation, and we’re living in a stagflationary episode.

The word stagflation was coined in the 1960s and grew in popularity in the wake of the 1970s global oil crisis, likewise sparked by conflict in the Middle East. To be sure, we are nowhere near the double-digit inflation rates we used to experience in the 1970s to 1980s, and also nowhere near the historic recession in 1984 to 1985. But for a country whose pre-pandemic trend growth used to be around 6%, growth of below 3% combined with 7% inflation is not “a bit of a slowdown.” It’s precisely the double whammy that characterizes stagflation, albeit using modern standards.

Abating inflation

The stagflation we’re experiencing has warranted significant alarm on the part of our policymakers.

First, the Bangko Sentral ng Pilipinas (BSP) is obviously very worried by the sharp rise of inflation. They already raised their policy rate in response to April’s inflation spike, and just yesterday, May 21, BSP Governor Eli Remolona said they are “considering” yet another policy rate hike for the June meeting of the Monetary Board, the BSP’s highest policymaking body.

These decisions are sound and defensible if they believe inflation expectations are at risk of “unanchoring” or being unstable. But the fact that they’re hiking interest rates in the economy amid a growth slowdown suggests they are willing to tolerate an even greater decline of output if that means controlling inflation better. That’s the kind of tough trade-off faced by central banks worldwide in stagflationary episodes such as this one.

The BSP can only control inflation to an extent, and one might say that their efforts seem to contrast with President Marcos’ hint that the government may “tolerate higher prices for certain non-essential food items.” That signals to producers that price ceilings will be policed selectively, and it might entrench inflation expectations rather than anchoring them.

The new P50 rice cap, meanwhile, addresses the symptom and not the supply shock itself. Rice ceilings have a long Philippine track record of producing queues, parallel markets, and eventual rollback. It didn’t work in September 2023, when Marcos tried exactly the same thing, and I doubt it will do much now.

Accelerating disbursements

Meanwhile, fiscal policymakers seem very concerned with the drastic slowdown of government investment. President Marcos’ own admission is telling: public spending was delayed in the first quarter of 2026, and the government is now trying to “accelerate” it.

Why was it delayed? The most plausible reading, which I have written about before, is the spillover from the 2025 flood-control corruption scandal. Disbursing officers, especially in the Department of Budget and Management (DBM), became understandably reluctant to sign off on infrastructure projects. GDP data show that government construction has subtracted from total construction for four straight quarters.

I think this is part of the reason for the sudden sacking of budget acting secretary Rolando Toledo, and his replacement by Kim Robert De Leon, the new budget secretary, aged 32.

In a House of Representatives hearing on May 12, ways and means chairperson Miro Quimbo alluded to incoming Secretary De Leon and called him as someone who “can be very strict” but also “very facilitative” as well. I take that to mean that the DBM under De Leon’s watch won’t be overly cautious to spend, and will facilitate spending, especially disbursements for lawmakers (therefore reverse the spell of slow disbursements).

What a coherent response would look like

It doesn’t inspire too much confidence that the president and his economists can’t agree about the current economic situation and diagnose it with coherence.

But whether or not the present economic crisis is called stagflation, the mix of high prices and weak growth is just as bad, and demands a proportional and coherent response from government.

First, the economic team should converge on a single public message. The team should agree on what configuration of growth and inflation it considers acceptable, and what they will do if the numbers worsen. They now face a dilemma: control inflation with higher interest rates but suffer a prolonged growth slowdown, or abate the slowdown but worsen inflation. That short-run trade-off must be navigated carefully with a steady hand coming from our leaders, preferably President Marcos himself.

Second, if we decide to spend more aggressively, fiscal policy should unfreeze spending without unfreezing the corruption. The political reality is that with the Independent Commission for Infrastructure (ICI) dissolved on March 31, the corruption probe has all but lost steam, and that makes unfreezing legitimate disbursements easier on paper, but also riskier in practice.

I’m worried that the historical second impeachment of Vice President Sara Duterte may open the floodgates for more pork barrel projects—as a possible reward to the 257 lawmakers who voted to impeach Duterte. For the record, shakeup in the DBM occurred just 8 days after that historic vote. The timing invites some suspicion. We should all watch that space.

Third, while oil prices are still elevated, the demand-side response (targeted ayuda or aid, service contracting, transport fuel discounts, buffer stocks for staples) still needs to be scaled up. In the latest meeting of the UPLIFT committee, it was reported that government had already given out P7.3 billion in cash relief assistance to about 1.4 million PUV drivers. At the same time, government is looking for ways to better target ayuda.

In conclusion, a stagflation by any other name would smell as bad, and needs to be addressed just as urgently. However, I’m afraid the economic response risks being distracted by the escalation of political drama, what with the upcoming impeachment trial of Vice President Duterte by July 6. – Rappler.com

Dr. JC Punongbayan is an associate professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. In 2024, he received The Outstanding Young Men (TOYM) Award for economics. Follow him on Instagram (@jcpunongbayan).