RISING commodity prices and the trade war between the United States and China will both have a negative impact on the Philippine economy, according to the World Bank.
In an e-mail to the BusinessMirror, World Bank East Asia and Pacific Chief Economist Sudhir Shetty said inflation will worsen poverty if it persists while the trade war could dampen the country’s export earnings.
On Friday the government announced that inflation reached 6.7 percent in September, bringing year-to-date inflation at 5 percent. Export earnings, meanwhile, have been weak with a growth of 0.3 percent in July and a contraction of 2.8 percent in the January-to-July period.
“Each [inflation and the US-China trade war] is a threat in its own way,” Shetty responded to an e-mail question recently sent by the BusinessMirror on which would have a greater negative effect on the economy.
Shetty explained that trade tensions between the US and China could slow global trade growth. Since the Philippines is part of the US-China value chain, this could dampen the country’s trade prospects.
He also said high inflation will dampen consumption growth and the country’s investment prospects. Consumption growth is a major growth driver for the Philippines while the government sees investment growth as a key to boosting job generation in the country.
“[Inflation will] hurt medium-term growth if it persists, as well as its disproportionate adverse effect on the poor,” Shetty explained.
On Friday the National Economic and Development Authority (Neda), Department of Finance (DOF) and Department of Budget and Management (DBM) said they remained committed to ensuring price stability despite the recent increase in inflation.
The economic team noted that the inflation rate of 6.7 percent in September was 0.3 percentage point higher than the 6.4 percent in August. This is slightly lower than the median market expectation of 6.8 percent and within the 6.3 to 7.1 percent forecast of the Bangko Sentral ng Pilipinas.
The Neda, DOF and DBM also said the increase in prices could ease with the passage of the bill amending Republic Act 8178, or the Agricultural Tariffication Act. This will convert the country’s quantitative restriction on rice into a tariff which will allow the entry of more rice imports.
As the country’s food staple, the share of rice to the total expenditure of households nationwide is at 8.92 percent, or nearly a tenth of the share of food and nonalcoholic beverages to the Consumer Price Index.
Meanwhile, in order to better monitor poverty, the Neda said it will soon be adopting the multidimensional poverty index (MPI) in measuring and reporting on poverty.
MPI captures the multiple deprivations that each person is experiencing, with respect to education, health and living standards. It complements the income-based poverty indicators.
Neda Undersecretary for Policy and Planning Rosemarie G. Edillon said the MPI concept and methodology are ready to be presented to the board of the Philippine Statistics Authority (PSA) by the fourth quarter of this year.
“My own take in all these protestations is that perhaps we are reporting the wrong metric,” Edillon said, noting that the MPI serves as an alternative measure of poverty. “Hopefully, the PSA can report periodically on this measure beginning next year.”
In 2015 the PSA reported that the country’s poverty incidence slowed to 21.6 percent. The government intends to bring this down to around 14 percent by 2022.
The PSA is currently in the process of conducting and collating the data for the Family Income and Expenditure Survey for 2018, which will be released next year. The
FIES is the basis for the country’s poverty and hunger incidence monitoring efforts.