EL Niño is now considered one of the major upside risks to inflation in the next few months, according to the Bangko Sentral ng Pilipinas (BSP) and the National Economic and Development Authority (Neda).
On Wednesday, the Philippine Statistics Authority (PSA) reported that inflation slowed to 5.4 percent in June from the 6.1 percent posted in May 2023 and June 2022. (Full story here: https://businessmirror.com.ph/2023/07/05/inflation-slows-down-to-5-4-in-june-downtrend-mostly-due-to-cheaper-food-transpo-costs-psa/).
The Philippine weather bureau, Pagasa, on Tuesday issued an advisory that El Niño’s impact will be most pronounced in the latter part of 2023 and will extend until the second quarter of next year.
“The balance of risks to the inflation outlook continues to lean towards the upside owing to the potential impact of additional transport fare increases and minimum wage adjustments, persistent supply constraints of key food items, El Niño weather conditions, and possible knock-on effects of higher toll rates on prices of key agricultural items. Meanwhile, the impact of a weaker-than-expected global economic recovery remains the primary downside risk to the outlook,” BSP said in a statement.
BSP said the June 2023 inflation rate was within the BSP’s forecast range of 5.3 to 6.1 percent. It is also consistent with the assessment that inflation will remain elevated over the near term before gradually decelerating back to target range in last quarter of 2023 in the absence of further supply-shocks.
“The BSP stands ready to adjust the monetary policy stance as necessary to prevent the further broadening of price pressures as well as the emergence of additional second order effects in view of the persistent upside risks to the inflation outlook,” BSP said.
“The BSP also supports the timely and effective implementation of non-monetary government measures to mitigate the impact of persistent supply-side pressures on inflation,” it added.
It may be noted that El Niño years such as 1998, which saw one of the worst dry spells experienced by the country, saw inflation average 9 percent and peak at 10 percent, according to PSA data.
However, data showed that in 2014 to 2016 when the country also experienced an El Niño, inflation averaged 3.8 percent in 2014; 0.9 percent in 2015; and 1.4 percent in 2016.
“The Inter-Agency Committee on Inflation and Market Outlook will continue to take proactive steps to address the main causes of inflation. This is particularly important considering the impending El Niño, which poses risks to food supply and prices,” Socioeconomic Planning Secretary Arsenio M. Balisacan said.
This may be a concern given that rice prices are already increasing. PSA National Statistician Claire Dennis S. Mapa said rice prices have been climbing since January 2023.
Rice inflation reached 2.7 percent in January 2023; 2.2 percent in February; 2.6 percent in March; 2.9 percent in April; 3.4 percent in May; and 3.6 percent in June.
Mapa also said all rice categories, regular- and well-milled as well as special rice prices in June 2023, all increased. It can be noted that rice, the country’s food staple, is a water-loving crop.
Rice has a weight of 8.87 percent of the Consumer Price Index (CPI) of the All Households and 17.87 percent weight in the CPI of the Bottom 30 percent of Households.
“We are seeing that the changes [in prices] are across the three commodity groupings of rice,” Mapa said.
“’Yung presyo sa [The prices in] retail, [with the] regular, [this is] locally produced [but the uptrend is] very slow, a few centavos every month since February.”
The scenario of all rice categories showing rising prices, including special rice which is imported, indicates that El Niño is not just being felt in the Philippines but in other parts of the world.
Bloomberg earlier noted that the El Niño will have the largest impacts on countries like India, Argentina, the Philippines, Australia, and Peru in terms of GDP reduction.
In terms of inflation, Bloomberg said Argentina, Brazil, India and the Philippines will experience the largest increases in commodity prices.
The Bank of the Philippine Islands (BPI) said given this, importing food may now be less effective in terms of slowing inflation.
“Importing food from abroad might become less effective in addressing supply problems since El Nino is expected to affect other parts of the world,” BPI stated in an economic brief.
The PSA said the 7.5 percent food inflation at the national level in May 2023 also exhibited a downward movement for the fourth month in a row.
In the previous month, food inflation was posted at 8 percent. However, despite the deceleration, the May 2022 food inflation was still lower at 5.2 percent.
Food accounted for a 42.5-percent share, “or 2.6 percentage points to the overall inflation in May 2023,” PSA said.
The core inflation, which excludes selected food and energy items in the headline inflation, slowed to 7.7 percent in May 2023 from 7.9 percent in April 2023.
This brings the average core inflation of January-May 2023 to 7.8 percent. In May 2022, core inflation was observed at 2.8 percent.
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