By Cai U. Ordinario & Bianca Cuaresma
Filipinos should brace for still higher commodities prices as the high inflation regime will likely continue until the end of the year, according to the National Economic and Development Authority (Neda).
This view was validated on Thursday by Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla Jr. who acknowledged that their latest inflation simulation show numbers that “somewhat spread,” resulting to more “elevated” price worries.
“We have always said that we will position policy based on our assessment of inflation. It is a very objective process and we keep looking at the data. And the data flow suggests that our concerns may be elevated in terms of inflationary pressures and expectations moving up,” Espenilla said.
“What we want to react to is whether it [inflation] is spreading and it is affecting expectations. And based on the latest data it seems to have spread somewhat and in fact, we revise upward our inflation forecast slightly,” he quickly added.
Socioeconomic Planning Secretary Ernesto M. Pernia told reporters at the sidelines of the Asian Development Bank (ADB) 51st Annual Meeting in Manila that inflation will continue to be high due to oil prices and the impact of the Tax Reform for Acceleration and Inclusion legislation.
The BSP estimates inflation to be between 2 percent and 4 percent this year until the President steps down in 2022. However, inflation already averaged 4.3 percent in March, or an average of 3.8 percent in the first quarter of the year.
“I think it will continue to be an issue throughout most of the year, maybe it will the peter out during the last quarter of the year—start to peter out,” Pernia told reporters.
However, Pernia said once the Philippines puts place a rice tariff to replace the country’s expired quantitative restriction (QR) on rice, there could be some reprieve where rice prices are concerned.
Pernia estimated that a rice tariff can cut inflation by a percentage point, which is already a considerable reduction.
This is possible since food accounts for over 30 percent of the consumption of households and the bulk of this is accounted for by rice, the country’s staple.
“At least 1 percentage point. It’s quite big,” Pernia said. “I think oil prices have really been a more material factor [in inflation].”
The Neda earlier stated that there is a need to immediately pass the rice tariffication bill in Congress to reform the agricultural sector.
The passage of the bill, which amends Republic Act 8178, otherwise known as the Agricultural Tariffication Act of 1996, will pave the way for the replacement of the QR on rice imports with tariff.
This will remove unnecessary government intervention in the rice market, as envisioned by President Duterte during the meeting with rice traders, officials of the National Food Authority (NFA) and members of the NFA Council (NFAC).
Inflation in the first three months of the year averaged at 3.8 percent, still within the 2-percent to 4-percent target for the year. In March, however, inflation rose sharply to 4.3 percent.
“You know our position here, we keep on monitoring those numbers. We don’t just focus on what we see today but look at it from a medium term perspective, especially with respect to the medium term,” Deputy BSP Governor for the Monetary Stability Sector Diwa C. Guinigundo said also at the sidelines of the 51st ADB Meet.
“But again you have the discipline of inflation targeting, you just don’t move the policy rate without considering all of the factors that we normally consider in the context of inflation targeting. We look at both price and monetary conditions we look at the trend in output,” the deputy governor added.
Guinigundo also cited one of the arguments saying that the economy has grown enough to absorb a tighter monetary-policy stance.
“Let us see on May 4 what is going to come out of the PSA [Philippine Statistics Authority]. If it is higher than 4.3 percent then it means something. If it is lower than 4.3 percent, 4.2 percent or 4.1 percent then we have to reassess all the numbers,” Guinigundo said.
The BSP earlier said inflation in April would likely climb above 4 percent and range from a low of 3.9 percent to as high as 4.7 percent.
The Department of Finance, meanwhile, projected inflation as high as 4.5 percent in April.
The PSA will release the latest inflation numbers on Friday, May 4, while the BSP will have its rate-setting monetary-policy meeting on Thursday, May 10.
“But let me just clarify. If the sum of all of these points of considerations point to the BSP undertaking decisive action, we will not have second thoughts on this because maintaining price stability is our primary mandate and we are going to adhere to that mandate of the BSP,” Guinigundo said.
The members of the NFAC Council, which include the Neda, also took note of the instruction of the President to expedite the processing of the necessary papers and clearances.
The Council is responsible for setting the terms of reference including the volume to be imported for the year, the timing of import arrivals and the mode of importation, while the permit to import by a specific trader or importer is being processed by the NFA.