The Economic Development Cluster (EDC) unveiled measures to ease high food prices after the Philippine Statistics Authority (PSA) reported on Wednesday that inflation surged to a nine-year high of 6.4 percent in August.
“We believe that, when these measures take effect, inflation will moderate,” Finance Secretary Carlos G. Dominguz III said during the meeting held on Wednesday.
The EDC recommended the following policy reforms to tame inflation:
- replicate the issuance of certificates of necessity to allow imports to be distributed in the wet markets in Metro-Manila and to the other markets of the country;
- immediately release 4.6 million sacks of rice available in warehouses of the National Food Authority (NFA) to the market across the country and allocation of 2.7 million sacks of rice to Zamboanga, Basilan, Sulu and Tawi-Tawi;
- import 5 million sacks of rice, which arrive over the next one-and-a half months and another 5 million sacks early next year;
- to reduce the gap between the farm gate and retail prices of chicken, the Department of Agriculture and the Department of Trade and Industry will convene poultry producers and set up public markets where producers can sell this directly to consumers; and
- open the importation of sugar to direct users to moderate cost to consumers.
“The economic managers have agreed to recommend to the President the issuance of a directive to further simplify and streamline the licensing procedures for rice imports of the NFA. Moreover, we urge the Senate to immediately pass the rice tariffication bill within the month,” the EDC said in a statement.
Economic managers also said the Bureau of Customs will prioritize the release of essential food items in the ports.
‘Nonmonetary policy agents’
BSP Governor Nestor A. Espenilla Jr. on Wednesday expressed dismay over the August inflation rate. The figure is beyond the upper of the BSP’s forecast range of 5.5-6.2 percent for the month.
“An unfortunate confluence of cost-push factors continues to drive consumer price inflation in August beyond the acceptable target range. Much of it has to do with food supply shocks. Rice in particular,” Espenilla told reporters.
The governor also said elevated oil prices continue to put pressure on inflation, with additional impact on transport and power prices. The peso has also been affected by emerging market uncertainties and a strong US dollar, thus adding to higher prices of imported foods.
Guinigundo said inflation goes up by 0.06 percentage points for every 1 percentage point of peso depreciation. Also, for every 1 percentage point of increase in global oil prices, inflation accelerates by another 0.03 percentage points.
“These warrant more decisive nonmonetary measures to fully address,” Espenilla said.
BSP officials have earlier said monetary policy alone cannot pull the country’s soaring inflation back to the ground, especially in this case where the rise of prices is largely driven by supply-side pressures.
In response to the stubbornly high inflation in the past months, the BSP has already increased its main policy rates by a total of 100 basis points in its last three meetings, the latest of which was a 50-basis-point rate hike—its most aggressive action in about a decade.
Asked to elaborate further, Guinigundo told the BusinessMirror that actions from outside the BSP’s mandate are also needed to help tame the country’s unruly inflation path.
Among the policy recommendations of the BSP, Guinigundo said, are stronger implementation of cash transfers, transport cost subsidies, rice tariffication and stricter monitoring of warehouses.
“We need to strengthen implementation of both Conditional and Unconditional Cash Transfer to mitigate purchasing power of the lower income class and reduce incentive to ask for higher minimum wage,” the deputy governor said in response to the BusinessMirror’s queries. He also said the Pantawid Pasada subsidy is needed to “reduce the incentive” to ask for higher fares.
Converting the quantitative restriction on rice into tariffs, Guinigundo said, will make more rice available in the market, bringing down prices. The tariff revenues will also allow the farm sector to improve its productivity and competitiveness.
BSP officials earlier said that, should the rice tariffication bill be enacted, it would cut inflation by 0.2 percentage points this year and as high as 0.6 percentage points in 2019. Rice is one of the more heavily weighted items in the Philippines’s consumer price index (CPI) basket.
Earlier, Espenilla said that inflation is seen to peak between August and September of this year before tapering off in 2019.
ING Bank Manila Senior Economist Joey Cuyegkeng said the bank expects inflation to remain elevated for the rest of the year with next month’s inflation rate likely to remain above 6 percent and full-year average inflation at 5.1 percent, significantly higher than the target range of 2-4 percent.
“Efforts of government to address supply issues should eventually moderate price pressures. But the impact of second-round effects would still have to be reflected in production costs and retail prices,” Cuyegkeng said.
“The BSP needs to contain runaway inflation expectations and demand pull pressures. The chances of another aggressive monetary policy action have zoomed as inflation surged. Another 50-basis-point policy rate hike at the September 27 meeting is a real possibility,” he added.
Economists at Australia and New Zealand (ANZ) Bank Research also said the BSP will need to implement more policy actions to bring back the inflation rate within the government’s target range.
“We now expect the BSP to increase its overnight reverse repurchase rate by 50 basis points at the upcoming September 27, meeting to 4.50 percent, compared to our earlier expectation for a 25-basis-point hike,” the ANZ said in a report.
Image credits: Alysa Salen