Inflation pressures from weaker Peso seen to ease during holidays

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said during the Philippine economic briefing held at the central bank office in Manila on Tuesday that preliminary reports on the typhoon’s damage show that “the impact is basically isolated and confined to certain areas.” (File Photo: Chamber of Real Estate and Builders’ Associations, Inc. – CREBA, Inc./Facebook)

MANILA – Monetary officials say that inflation pressures generated by the weaker peso are likely to ease towards the Christmas holidays even as they indicated that Typhoon Ompong’s (Mangkhut) effect on the larger economy is likely to be manageable.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said during the Philippine economic briefing held at the central bank office in Manila on Tuesday that preliminary reports on the typhoon’s damage show that “the impact is basically isolated and confined to certain areas.”

“So we don’t see generalized effects on the supply, logistics and even in terms of production,” he said.

On the impact on rice supply in particular, he said the “harvest (season) is about to take place” and noted that some farmers have started harvesting “so the impact on rice would be minimal.”

In the first eight months of this year, inflation averaged at 4.8 percent, higher than the government’s 2 to 4 percent target range until 2020. Last August alone, inflation rose to a multiyear high of 6.4 percent from month-ago’s 5.7 percent.

The sharp rise in the domestic inflation rate was traced to supply-side factors, particularly due to lack of supply of rice, fish, meat and vegetables.

The government’s Economic Development Cluster (EDC) has identified nine measures to address supply constraints and these include the release of some 4.6 million bags of rice from the warehouses of the National Food Authority (NFA) to retailers, and the inter-agency surveillance and monitoring of delivery of rice from ports to NFA warehouses and retailers.

Other measures are the reduction of gap between farm gate prices and retail prices of chicken; the opening by the Sugar Regulatory Administration (SRA) of sugar importation to direct users to moderate costs for consumers; and for the Bureau of Customs (BOC) to prioritize the release of essential food items in the ports.

Guinigundo said these measures are expected to address high prices of basic commodities and help contain the elevated inflation rate.

He said share of rice in the total consumer price index (CPI) basket is around 9 percent “so to the extent that we have more, enough supply of rice I think we could expect some mitigation from that end.” “And hopefully, in the last quarter of the year, the rice tariffication bill will be approved by Congress,” he said.

President Rodrigo Duterte has certified the rice tariffication bill that is targeted to liberalize rice importation, as an urgent measure.

To date, rice importation is covered by a quantitative restriction (QR), which allows importers to purchase rice from overseas based on their license.

Under the rice tariffication bill, the NFA will be tasked to ensure adequate rice buffer, as well as proper logistics, to ensure supply in the market.

Guinigundo added that the nine measures identified by the EDC “should help temper any price pressures gathering momentum for the rest of the year and in 2019.”

He said inflation pressure from weakness of the peso is seen to be lessened in the coming months due to the seasonal influx of inflows from Overseas Filipino Workers (OFWs) during the holidays, as well as receipts from the business process outsourcing (BPO) sector.  “This is the holiday season so you would expect that the exchange rate will start shaping up and as you know for every 1 percentage point depreciation we will see a 0.06 percentage point increase in inflation,” he said.

To date, the peso has depreciated by about 8 percent and is trading at the 54-level to the US dollar.

He, however, pointed out that foreign portfolio investments and foreign direct investments (FDIs) continue to attract inflows. “I think the economy continues to shape up. For the rest of the year, inflation remains manageable and we expect the peak to happen during this quarter and to start going back to the 2 to 4 percent inflation target for the next two years,” he added.