THE Bangko Sentral ng Pilipinas (BSP) warned that various food supply problems, including potatoes and fish, could exacerbate the country’s accelerating inflation.
In its February economic outlook, the BSP listed the various key commodities seeing elevated prices because of supply constraints that will “further add to the upside risks to inflation.”
These are: livestock, poultry, fish, onions and even potatoes.
This, as Finance Secretary Benjamin E. Diokno said other Executive departments and even local government units must be more “aggressive” and focused so the government can temper the country’s accelerating inflation.
Diokno pointed out that monetary authorities such as the BSP have already done their part in tempering the country’s inflation, adding that resolving higher costs of goods and services is an “all-of-government campaign.”
“In the fight against inflation, monetary policy is not the only game in town. The main sources of inflation remain on the supply side, which should be the responsibility of fiscal authorities,” he said in a statement at the weekend.
“While evidence of second-round effects is increasing, the previous direct actions by government agencies have yet to work through its way,” he added.
High prices till end-year
The high prices of the commodities it listed may persist until the end of the year if the national government will not address the constraints, the BSP said.
“The scenario assumes that the elevated price levels of these commodities will be sustained until end-2023 if the supply constraints are not addressed,” said the Central Bank report.
In the meat sector, the BSP said pork could remain expensive as the threat of African swine fever (ASF) still crimps expansion plans in the sector. High feeds and logistics costs have worsened that situation for local hog producers, it added.
“Chicken prices have likewise increased in the previous year as high production costs put a strain on producers’ operations,” the report read.
“Expansion plans in the sector were also limited by the continued threat of Avian Influenza and the high cost of feed ingredients,” it added.
The BSP thinks the country could suffer a shortage of fish in the first quarter despite the entry of imports. It cited agriculture department estimates that total fish supply in the January-to-March period is at 688,799 metric tons compared to the total estimated demand of 884,910 MT.
“As a result, the projected supply deficit is 196,111 MT for Q1 2023 with a sufficiency level of 77.8 percent,” it said.
High onion prices are also seen to remain a factor driving inflation, as only less than a quarter of the approved 21,000 MT of onion imports entered the country.
The BSP also flagged potatoes as an inflation concern: its price now hovers between P100 and P150 per kilogram from P75 per kilogram in end-Q3 2022.
“Prices have steadily gone up starting Q4 of last year. Prices of high-value crops such as potatoes could increase from lower production following weather-related disturbances,” the BSP said.
The BSP said sugar prices could stay high in the next 12 months if the arrival of sugar imports is delayed, particularly after the harvest and milling season.
“Based on the 240 by 240 2018 input-output table, the commodities and industries most sensitive to the changes in the price of sugar are soft drinks and juices, chocolates and sugar confectionary, bakery products and alcoholic beverages,” it said.
‘Most aggressive policy’
Diokno, a former BSP governor, said the country’s monetary policy is now considered the “most aggressive” in the region and the impact of the series of interest rate hikes is “working its way” already.
He noted that the BSP has already implemented a rate hike of 400 basis points (bps) since the start of the year compared to India’s 250 bps, Indonesia’s 225 bps and 100 bps for Thailand and Malaysia.
“The Executive Department and the LGUs should intensify the implementation of more direct, non-monetary measures to help address the supply issues,” he said.
Diokno’s statement came a few days after the Monetary Board increased the BSP’s overnight reverse repurchase facility by 50 bps to 6 percent to ease accelerating inflation that rose to a higher-than-expected rate of 8.7 percent in January, the fastest in more than 14 years. (Related story: https://businessmirror.com.ph/2023/02/17/monetary-board-deals-50-bps-rate-hike-more-in-future/)
The BusinessMirror earlier reported economists’ warning that inflation could outpace the country’s economic growth this year, especially if no steps are taken to mitigate supply side constraints. (Related story: https://businessmirror.com.ph/2023/02/10/economists-warning-inflation-could-outpace-growth/)
Diokno said the national government will form a “small” technical working group (TWG) of various executive agencies for an “objective” and “timely” assessment of the country’s food supply and demand conditions.
The TWG members are the National Economic and Development Authority, Department of Finance, Department of Budget and Management, Department of Trade and Industry and Department of Agriculture.
“This responsibility should be taken away from vested groups. This will help ensure timely actions to avert short-term upticks in food prices,” Diokno said.
The peso-dollar exchange rate is stabilizing within the range of P54 to P55 while global prices of oil and oil products are now within “reasonable” levels, he noted.
“If the Executive Department succeeds in controlling the sources of inflation on the supply side more effectively, there will be less reason for monetary authorities to raise policy rates,” he said.
Diokno said the national government, particularly the DA, has initiated import measures to augment local supply and stabilize prices of certain commodities such as onion and sugar.
“But timely importation of food items in short supply is not enough. There has to be a focused effort to ensure that the imported goods reach the intended markets as soon as possible,” he said.
Diokno urged the Bureau of Customs to immediately release imported food items with the “same sense of urgency” that it showed in the importation of Covid-19 vaccines.
“Local authorities should facilitate, not impede, the movement of essential food items to the intended markets. Restricting free movement of essential food items is one sure way of prolonging inflationary pressures,” he said.
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