INCHEON, South Korea—The Philippines has mechanisms in place to cushion the impact of El Niño on food supply but the Bangko Sentral ng Pilipinas (BSP) says the extent of the impact, particularly on inflation, remains to be seen.
In an interview with BusinessMirror on the sidelines of the Asian Development Bank (ADB) Annual Governor’s Meeting, BSP Governor Felipe M. Medalla said the severity of the El Niño, and not its timing, will be a greater factor to consider in terms of its impact on inflation.
This week, the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA), warned that there is an 80 percent chance that an El Niño will start sometime in June to August and continue until the first quarter of 2024.
“If it turns out to be a really bad year then the actual will be higher than our forecast,” Medalla told this newspaper.
During the interview, BSP Deputy Governor Francisco Dakila Jr. said that the BSP’s inflation targets that were included in the latest projections of
the Development Budget Coordination Committee (DBCC) “assumes the absence of further supply side shocks.”
Dakila said the BSP’s report to the DBCC was that inflation will average 6 percent this year and 2.9 percent next year. The main reason for the higher forecast was the high inflation in January which, Medalla noted, was 1.7 percent month on month.
Medalla said when it comes to inflation, having shocks lasting over 15 months would be a threat. He said the longest shock experienced by the country was 15 months and it would be a threat if shocks last for 18 to as long as 20 months.
However, the inflation rate could benefit from base effects. “If inflation is so high, the base effect will make the inflation rate lower. The thing about inflation is prices don’t have to go down. All that has to happen is for the rate of increase to go down. And generally, if it’s already increased a lot, then it’s less likely to increase by a lot more when you look at the statistics,” Medalla said.
Neda to ‘fight very hard’
Nonetheless, Medalla said the national government has learned its lesson. He said National Economic and Development Authority (Neda) Secretary Arsenio M. Balisacan will “fight very hard” to ensure that “imports don’t come too little, too late.”
“Our high inflation is really our imports coming too late. I do not blame the government for wanting to protect the farmers. There are many good reasons for being protectionist. The principal reason for being protectionist is when supplies are short, the people who usually supply to us, stop supplying. Of course they prefer their own consumers to ours,” Medalla said.
Earlier, BSP disclosed that it expects April inflation to be slower due to the decline in electricity prices and select food items.
In its month-ahead inflation, BSP said April inflation may have averaged 6.3 to 7.1 percent, lower than the 7.6-percent inflation recorded in March 2023.
If the low end of the target is achieved, this will be the same rate in August 2022 and the lowest since June 2022 when inflation was at 6.1 percent. If the high end of the forecast is attained, this will mark the sixth consecutive month that inflation is above 7 percent. However, BSP said, upward pressures still remain. These include higher domestic petroleum prices, increased rice and meat prices, and peso depreciation.
Image credits: Suzanne June G. Perante
