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Rice price hike may dampen momentum to tame inflation

04 August 2023

Rice may again be the cause of higher inflation in the coming months as Philippine Statistics Authority (PSA) data showed that prices returned to levels that were seen prior to the implementation of a law that sought to bring down the price of the staple.

On Friday, the PSA reported that inflation averaged 4.7 percent in July 2023 and was the lowest in 16 months. (Full story here: https://businessmirror.com.ph/2023/08/04/commodity-prices-hit-16-month-low-in-july-psa/).

PSA data showed rice inflation averaged 4.2 percent in July 2023, the highest since February 2019 when the increase in the commodity’s prices was at 4.5 percent. The Rice Trade Liberalization (RTL) Act was implemented in March 2019.

“Ngayon, hindi pa siya [rice prices] ganun kataas but I agree with your observation na pwedeng ito ang magiging source ng future inflation natin,” National Statistician Claire Dennis S. Mapa said.

Mapa said rice prices this year gradually increased starting in February when inflation for the staple posted a 2.2 percent increase; March, 2.6 percent; April, 2.9 percent; May, 3.4 percent; and June, 3.6 percent before reaching 4.2 percent in July.

Further, Mapa said that in July, similar to June, the PSA also recorded increases in the price of all rice varieties that they monitor—regular milled, well-milled, and special rice.

Based on data, Mapa said regular milled rice prices averaged P41.50 per kilo, higher than the P41.20 per kilo in June and P39.60 per kilo in July 2022.

For well-milled rice, Mapa said the average price was at P45.50 per kilo in July, higher than the P45.20 in June and P43.90 in July 2022.

Special rice, Mapa added, averaged P54.60 per kilo in July, higher than the P54.40 posted in June and P53.10 in July 2022.

Data obtained from PSA also showed that average regular milled rice prices started climbing in March 2022 at P38.97 per kilo, while special rice, the most expensive rice variety, started increasing from P52.96 per kilo in June 2022.

“While we continue to experience a downtrend in inflation, we need to be vigilant, especially as we face increasingly volatile weather disturbances as well as external headwinds, such as oil price increases and trade restrictions on food,” National Economic and Development Authority (Neda) Secretary Arsenio M. Balisacan said.

“The government will implement necessary measures to prevent price spikes, protect the purchasing power of Filipino families, and sustain our economic recovery and momentum,” he vowed.

To ensure that current weather disturbances will not have a lingering impact on inflation and the economy for the rest of the year, Balisacan said the government has proactively taken steps to deploy its resources to affected areas as well as prepare its policy and on-the-ground response as it expects more typhoons and weather disturbances from the El Niño.

In light of global climate uncertainties and food supply challenges, the Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO) and the Economic Development Group (EDG) held a joint meeting last July 20, 2023 to discuss proposed policy adjustments that seek to ensure a more stable supply of agricultural products to meet the demand of different users and end-consumers adequately.

At the same time, the committee reiterated the productivity-enhancing and efficiency-improving strategies laid out in the Philippine Development Plan 2023-2028 concerning agriculture and agribusiness.

These measures aim to secure the country’s food supply, prevent sudden increases in agricultural commodity prices, improve the well-being of farmers and fisherfolk, and ensure the vital contribution of agriculture to other sectors of the economy.

“The balance of risks to the inflation outlook continues to lean towards the upside owing to the potential impact of additional transport fare increases, higher-than-expected minimum wage adjustments in other regions, persistent supply constraints of key food items, El Niño weather conditions, and possible knock-on effects of higher toll rates on prices of key agricultural items. Meanwhile, the impact of a weaker-than-expected global economic recovery remains the primary downside risk to the outlook,” the Bangko Sentral ng Pilipinas (BSP) said.

Nonetheless, the BSP still expect that inflation will gradually decelerate back to the target range by the fourth quarter of 2023 in the absence of further supply-shocks.

“The BSP stands ready to adjust the monetary policy stance as necessary to prevent the further broadening of price pressures as well as the emergence of additional second order effects in view of the persistent upside risks to the inflation outlook,” BSP said.

“The BSP also continues to support the timely and effective implementation of non-monetary government measures to mitigate the impact of persistent supply-side pressures on inflation,” it added.

Finance Secretary Benjamin E. Diokno, meanwhile, believes the country is “over the hump” when it comes to inflation as this the sixth consecutive month that inflation has eased.

“This the sixth consecutive month that inflation has eased, strongly supporting the likelihood that inflation might be within the 2 to 4 percent target range by the fourth quarter of 2023.

Meanwhile, core inflation, which excludes selected food and energy items, decelerated, too—to 6.7 percent in July 2023 from 7.4 percent in June 2023,” Diokno said.

Bottom 30 percent

PSA said the country’ overall inflation for the bottom 30 percent income households continued to exhibit a downward trend as it decelerated further to 5.2 percent in July 2023 from 6.1 percent in the previous month, the lowest inflation observed since April 2022 with an inflation rate of 5 percent.

This brings the national average inflation rate from January to July 2023 for this group of consumers to 7.6 percent. In July 2022, the headline inflation for this income group was higher at 7.2 percent.

The main driver of the continued downtrend of the overall inflation in July 2023 was the lower year-on-year increase in the heavily weighted food and non-alcoholic beverages at 6.1 percent in July 2023 from 6.9 percent in the previous month.

This was followed by housing, water, electricity, gas and other fuels, which posted an annual mark-up of 3 percent during the month from 4.8 percent in June 2023.

The third main driver to the slowdown was transport, which exhibited an annual contraction of 3 percent from the decline of 1.2 percent in the previous month.

Meanwhile, faster annual increases were posted in the indices of recreation, sport and culture at 6 percent in July 2023 from 5.8 percent in the previous month; and education services at 3.3 percent from 3.2 percent. The indices of the rest of the commodity groups moved at their respective previous month’s annual rates.

Source: Business Mirror