HIGHER investments in agriculture and infrastructure are potent non-monetary measures that can help bring down inflation, according to Monetary Board members.
Monetary Board Member Bruce J. Tolentino told BusinessMirror on Monday that efforts to boost spending for agriculture, infrastructure, power, trade, and government operation will greatly contribute to bringing down inflation.
Based on the Consumer Price Index (CPI) for All Income Households, these have a significant impact on inflation. Food has the highest weight of 34.78 percent while the housing, water, electricity, gas and other fuels segment has a weight of 21.379 percent.
Investments “in crucial sectors such as infrastructure and agriculture” are lacking, Tolentino told this newspaper. It is, he stressed, “crucial to ensure that the expenditures are those that truly increase productivity.”
Infrastructure, trade and government operations do not have direct weights under the CPI but can be felt through various commodity groups.
However, based on the CPI for All Income Households, transportation has a weight of 9.03 percent while information and communication has a weight of 3.41 percent.
Overall, food and non-alcoholic beverages have a weight of 37.7 percent while non-food commodties carry a weighht of 60.09 percent.
As such, Tolentino said, agriculture investments must be poured into productivity-enhancing interventions. This means investing in “high-yielding seeds, carefully designed irrigation, veterinary services, [and] farmer knowledge.”
In terms of infrastructure, Tolentino said infrastructure investments should be directed toward “open telecoms and many more transport infra, particularly in rural areas.”
“In general, the Philippines’s investment rate is low versus our peers. This includes not just government, but the whole country,” Monetary Board Member Romeo Bernardo told BusinessMirror.
He also said the country also needs more investments to attract Foreign Direct Investments (FDIs) and Public Private Partnerships (PPPs), particularly for infrastructure projects.
Last week, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. released an open letter to President Ferdinand R. Marcos Jr. which also highlighted the importance of non-monetary measures to address inflation this year.
Tolentino clarified that the open letter was issued by the BSP Governor to meet the requirements of the law. He explained the BSP must explain to the national government “why inflation is not keeping to the policy rate.”
He added that this is embedded in the inflation-targeting framework of the BSP as approved by the Development Budget Coordination Committee (DBCC).
“Open Letters are issued and published by inflation-targeting central banks to promote greater transparency and accountability in the monetary policy decisionmaking,” said Tolentino, quoting DBCC Resolution No. 2002-01.
In his open letter, Remolona said the BSP’s risk-adjusted forecasts indicated that inflation may settle above the target at 4.2 percent in 2024 before slowing to about 3.4 percent in 2025.
However, risks remain skewed to the upside this year and next year. These upside risks include higher transport charges, increased electricity rates, and higher oil and domestic food prices . (See: https://businessmirror.com.ph/2024/01/26/bsp-chief-endorses-non-monetary-measures-against-inflation-to-pbbm/).
The BSP, Remolona earlier told reporters, remains hawkish because commodity prices are expected to increase in the second quarter of the
year. (Full story here: https://businessmirror.com.ph/2024/01/29/rate-hike-hinges-on-faster-growth-in-q4/).
Image credits: Nonie Reyes