FILIPINO consumers should brace for higher commodity prices in the next two or three quarters, according to local economists.
However, the country’s socioeconomic secretary assured the public on Thursday that inflation could very likely plateau next quarter on expectations of declining oil prices and a rice-tariff system already in place.
Ateneo Center for Economic Research and Development Director Alvin P. Ang said inflation will likely average 4.8 percent this year before slowing to around 3 percent to 4 percent next year.
Ang said inflation is expected to peak this month and in August when inflation is expected to breach 5.2 percent. He said inflation will start slowing in around September due to base effects.
“I think inflation will continue to increase, maybe until September when inflation will see a minimal slowdown,” Ang told the BusinessMirror. “This will be fueled by food and education costs.”
University of Asia and the Pacific School of Economics Dean Cid Terosa agreed inflation will continue to increase, and said this may compel monetary authorities to increase interest rates. Terosa said this is especially the case if inflation will continue to breach 5 percent in the coming months.
“I think inflation hasn’t peaked yet because external events like the looming trade war and unpredictable changes in world oil prices continue to threaten the stability of the domestic environment,” Terosa said.
“The BSP [Bangko Sentral ng Pilipinas] should consider raising interest rates if inflation will continue to be above 5 percent in the next quarter,” he added.
‘Judgment call’
Meanwhile, Action for Economic Reforms (AER) Coordinator Filomeno S. Sta. Ana III said inflation may continue to register a year on year increase but the rate may be on the downtrend on a monthly basis.
Sta. Ana said supply side issues are usually not addressed by hiking interest rates. It will be a “judgment call” on the part of the BSP on whether they will raise interest rates anew.
“At the moment, given the slowing down of the rate, technically, it will shun a higher rate unless external factors like foreign interest rates go up again. But there is also a political temptation, in light of expectations that can become self-fulfilling,” Sta. Ana said.
Socioeconomic Planning Secretary Ernesto M. Pernia said the “slip in timing” in the adjustment of the country’s interest rates may have prevented the BSP from completely stemming inflation.
Neda Undersecretary for National Planning and Policy Rosemarie G. Edillon said external factors have affected the impact of policy rate setting, such as the recent policy actions of the Federal Reserve and the lag in the response of the market to the recent policy rate adjustments of BSP.
“There may have been a little slip in timing of the increasing policy rates,” Pernia said. “Again that [raising interest rates] will be a decision to be made by the BSP.”
However, Pernia assured the public on Thursday that there is a possibility that inflation could plateau next quarter due to expectations that oil prices will decrease and the country would already have a rice tariff in place.
Oil prices have been cited as one of the main contributors to the increase in inflation while the country’s quantitative restriction (QR) on rice has prevented the country from getting more access to cheaper rice from abroad.
Pernia said higher oil production will be coming from Russia to make up with the shortfall experienced in the past few months. Due to the supply, oil prices have increased to around $70 per barrel in the past months.
In terms of the QR, Pernia said the bill to amend the RA 8178 or the Tarrification Act is under way since the President has deemed the passage of the bill as urgent.
“We expect inflation to peak in the third quarter and taper off by October; government needs to implement necessary measures, both short term and long term, to address the impact of inflation,” Pernia said.
Neda still running the numbers
Edillon said these may be sufficient to mitigate possible price increases brought about by higher jeepney fares and, if granted, the increase in minimum wage.
Edillon said, however, that the Neda is still in the process of running the numbers with regard to the increase in jeepney fares to P9 from P8 for the first 4 kilometers as the Land Transportation Franchising and Regulatory Board (LTFRB) only submitted its request
on Wednesday.
As for the minimum wage, Edillon said plans to increase it are still under discussion by various regional wage boards and will still undergo consultations.
“This has been factored in our computations, with respect to the wages, we do it on a per-region basis and all these are being factored in including any developments in the region,” Edillon said. In June inflation increased to 5.2 percent, the highest under the 2012 series of the Consumer Price Index (CPI). The main causes were higher food and fuel prices, according to the Neda.
The food alone index posted a growth of 5.8 percent in June 2018. It was posted at 5.5 percent in the previous month and 3.1 percent in June 2017.
Year-on-year inflation in Metro Manila or the National Capital Region (NCR) accelerated by 5.8 percent in June 2018. It was pegged at 4.9 percent in the previous month and 3.1 percent in June 2017.
In Areas Outside NCR, inflation reached 5.1 percent in June 2018. In the previous month, inflation settled to 4.6 percent and in June 2017, 2.3 percent.
Image credits: Alysa Salen