By Cai U. Ordinario & Bianca Cuaresma
INFLATION reached 4.3 percent in March, breaching the government’s full-year target of 2 percent to 4 percent, and averaged 3.8 percent in the first three months of the year, according to the Philippine Statistics Authority (PSA).
The National Economic and Development Authority (Neda) said the high inflation rate was driven by the continuous cost acceleration of key commodity items since the start of the year: Alcoholic beverage and tobacco (18.6 percent), food and non-alcoholic beverages (5.9 percent), and housing, water, electricity, gas and other fuels (2.9 percent).
Neda Undersecretary for Planning and Policy Rosemarie G. Edillon said proactive measures will be vital in managing inflation and mitigating its impact, especially on the poor.
“The government remains vigilant to price pressures, especially on food consumed by the poor, such as rice,” she said in a statement on Thursday.
Prices of rice rose 3.6 percent in March, from 2.8 percent in February. Farm-gate prices of palay have been on an upward trend since the second week of January, which, in part, contributed to higher wholesale and retail prices of rice.
Edillon cited the urgency to fast-track the amendments of Republic Act 8178, or the Agricultural Tariffication Act, which will remove the quantitative restrictions on rice importation, and eventually open imports to private traders and allow the National Food Authority (NFA) to focus on ensuring buffer stocks for rice. “Without this measure, containing food-inflation pressures will be a challenge given the diminishing rice stocks,” Edillon said.
The Neda said the country’s total rice inventory, inclusive of stocks from households, commercial warehouses and NFA depositories, registered a marked drop to 1,795.78 thousand metric tons (MT) as of February 1, 2018.
Edillon noted that, while the 250,000 MT of imported rice scheduled to arrive next month will momentarily boost the NFA stockpile, this will not be able to meet the country’s rice demand in the succeeding months.
Edillon said inflationary pressures from other agricultural food items must be managed as well, while at the same time anticipating developments in international oil markets. “Given the risks, we really need to be anticipative and proactive in implementing measures to ensure price stability and cushion the impact of higher consumer prices on the poor,” Edillon said.
The PSA reported that inflation was highest in Metro Manila or the National Capital Region (NCR), where prices surged 5.2 percent in March 2018.
In the previous month, inflation settled to 4.7 percent and in March 2017, 3.9 percent. The uptrend was due to higher annual increases recorded in the indices of eight out of the 11 commodity divisions. In Areas Outside of NCR, inflation was also high at 4.1 percent in March. The annual rate in the previous month was posted at 3.6 percent, and in March 2017, 2.9 percent.
The PSA said faster annual add-ons were observed in all the commodity groups, with the transport index registering a slower annual growth of 4.4 percent.
Meanwhile, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said they are “closely monitoring the situation” following the surge in inflation in March.
“The coming task of the Monetary Board is to carefully evaluate the appropriateness of a measured policy response to firmly anchor inflation expectations in line with our forecast that inflation targets will continue to be met in 2018-2019,” Espenilla said.
“This can allow as well for orderly adjustment in market rates and in the peso. We are closely monitoring the situation,” he added.
In their most recent monetary policy-setting exercise on March 22, the BSP said inflation is expected to average 3.9 percent for 2018 under the new 2012 base year consumer price index computation, and to further go down to 3 percent by 2019.
In the same meeting, the BSP maintained its policy rate at the status quo of 3 percent, saying while upside pressures to inflation remain, expectations are anchored within the 2-percent to 4-percent target range.
This prompted some economists and analysts to say that the BSP is falling behind the curve and will need to tighten its rates soon to control the rise of consumer prices.
Nevertheless, the BSP remained confident that inflation will “average near the high end of the target range in 2018 before decelerating further to the midpoint of the target range in 2019” as indicated in their formal statement following the inflation announcement.
“The elevated path of inflation in 2018, along with rising inflation expectations, will be continually be assessed to guard against potential second-round effects from developing and inflation becoming broader based,” the BSP said.
“Nevertheless, nonmonetary measures, such as institutional arrangements in setting transportation fares and minimum wages, unconditional cash transfers, as well as transport
subsidies, are expected to help mitigate these inflationary impulses,” it added, explaining that the proposed reforms in the rice industry could also help temper price pressures.
The BSP’s statement also reiterated the monetary board’s data dependence in formulating future monetary policy. “The BSP will remain vigilant in evaluating price conditions and is ready to take appropriate measures as necessary to ensure that inflation over the policy horizon remains consistent with the target,” the BSP said.
“The inflation data today tells you that consumer price rise is broader than originally thought,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “Rate hikes are on the cards probably as early as May. The case for BSP to hike sooner rather than later is strengthening.”
The peso fell 0.1 percent to 52.1 per dollar as of 10:34 a.m. on Thursday in Manila, taking its decline this year to 4.2 percent.
The majority of economists surveyed in February and March forecast the benchmark rate will be raised from a record-low 3 percent this quarter. But there is still debate on the rate outlook.
“The central bank has been very clear in saying that inflation will still be within their target range” and may not move its key rates in the immediate future, said Jill Singian, a government bond trader at Bank of the Philippine Islands in Manila.
ING Groep NV sees higher prices this year, but forecast rates will remain unchanged as inflation will slow.
“The Central Bank won’t raise rates,” said Joey Cuyegkeng, a senior economist at ING in Manila. “It’s all in line with the Central Bank’s expectations that inflation will continue to rise and eventually will turn more moderate.”
With Bloomberg News