Inflation of 7.2% in September is wearing down the value of the Philippine peso, economist Emmanuel Leyco has said as reported by The Philippine Star. He added that the price surge is putting heavier pressure on households and businesses and making the currency less appealing to investors.

His remarks came a day after the peso closed at a record low of PHP62.9 per US dollar on October 8. The Bangko Sentral ng Pilipinas (BSP) had set its benchmark interest rate at 5% in August to curb borrowing and spending. Leyco said that rate is now being outpaced by rising prices.

Speaking to Super Radyo dzBB, Leyco said inflation was in effect consuming the country's money, a serious problem for the peso. He said investors were moving towards the US dollar because American interest rates compare more favourably with US inflation.

Leyco said this leaves the central bank with a difficult choice. Raising rates further would make loans more expensive for business owners and individuals. Holding them steady would leave the peso unattractive to investors.

Ordinary households bear the brunt, he said, because a weaker currency raises the cost of imported staples such as oil and rice, which in turn adds to inflation.

Leyco said the problem extends beyond the central bank to the whole government, which he said should identify what is driving prices higher.

He said Manila has no influence over the conflict between the US and Iran, but it could lower domestic fuel prices by suspending the excise tax. He said savings of PHP6 to PHP10 per litre would bring consumers considerable relief.

In September, President Ferdinand Marcos Jr. suspended the excise tax on kerosene and LPG. Gasoline and diesel were excluded because of concerns over lost revenue and worries that the benefit would go mainly to wealthier households instead of low-income groups.

Leyco warned that weaker purchasing power would show up as slower economic growth in upcoming government data as consumer spending cools.