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FILIPINOS may have heaved a sigh of relief as inflation cooled in September but one of the causes, lower  rice prices, may be temporary and lead to greater volatility in domestic prices of the staple, according to an economist.

Ateneo de Manila University economist Leonardo Lanzona Jr. told BusinessMirror that a decrease in international rice prices could also make the country more dependent on imported rice.

This dependence may lead to the country’s increased vulnerability brought by global market prices. This could translate to higher inflation each time rice or oil prices would spike.

“The decline in inflation is fundamentally short-term in nature as this is driven by external factors. While these policies offer temporary relief, they expose the Philippines to risks associated with global market volatility,” Lanzona said.

The country’s tariff and monetary policies, in general, have allowed the economy to be immediately affected by international developments such as rising interest rates and prices, Lanzona added.

Ibon Foundation Inc., meanwhile, said despite the slowdown in rice inflation to 5.7 percent, the price of regular-milled rice in the National Capital Region (NCR), for instance, still increased by P3 or about 7 percent to P46 in September 2024 from P43 in September 2023 while well-milled rice rose by P4 or 7 percent to P53 from P49.

“But rice varieties priced over P50 per kilo tend to be more common at the market. Some one-third of domestic  palay costs are from imported inputs, not yet counting further oil-dependent transportation costs to bring rice to retailers and consumers,” Ibon said.

Worth noting, Ibon also said, is the inflation experienced by the poorest Filipinos at 2.5 percent in September. This is slower than the 4.8 percent in August 2024 but was faster than the 1.9 percent average inflation rate experienced by all income households.

Ibon noted that expensive rice impacts the poor more heavily because around 54.93 percent of their budget goes to food. Based on the data from the Philippine Statistics Authority (PSA), rice has a weight of 17.87 percent in the Consumer Price Index of the poorest Filipinos.

The group also stressed that wages are not keeping up with high prices. Ibon estimated that across all regions, the average nominal wage of P448 is 63.1 percent short of the average family living wage (FLW) of P1,213 for a family of five, as of September 2024.

In the NCR, even with the July 2024 wage hike, the P645 nominal wage is P561 or 46.5 percent short of the P1,206 NCR FLW.  

The disparity between the nominal wage and the FLW is most glaring in the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM), with a nominal wage of P361 which is 82.4 percent short of the region’s P2,047 FLW.

“Government should also take steps to ensure cheaper and more efficient domestic production of Filipino goods and services instead of increasingly relying on the global market,” Ibon said.

“Improved local production to meet the nation’s needs is the only long-term solution to job creation as well as making basic goods and services accessible and affordable for Filipinos,” it added.

Inflation battle over

HSBC Asean economist Aris Dacanay said the latest inflation print may signal the end of the country’s battle with inflation. This is no small feat, as he said this is “because of a mix of both hard work and luck.”

Dacanay noted that the last time inflation was at this level was when the Philippines was in lockdown due to the Covid-19 pandemic.

“It almost feels too good to be true as the Philippine economy went through an inflation surge that lasted for almost two years. But we think the September CPI marks the day that the BSP’s inflation battle is finally over,” Dacanay said.

He said hard work came from monetary and non-monetary authorities. The BSP’s decision to keep policy rates high, which peaked at 6.5 percent representing a 450 basis point increase, kept inflation expectations anchored.

Non-monetary measures, he said, helped reduce trade barriers for commodities such as  rice, coal, and pork. This moved to ensure Filipino consumers have access to more affordable imported alternatives.

Part of the country’s good luck is lower fuel prices and the appreciation of the peso against the US dollar in September. Ample supply of rice also helped keep prices low.

“Luck is also a big factor moving forward. India, the world’s largest exporter of rice, just lifted its trade restrictions on the grain. This comes at an opportune time for the Philippines since retail rice prices haven’t decreased yet, even with the 20 percentage point tariff rate cut in July,” Dacanay said.

On Friday, the Philippine Statistics Authority (PSA) disclosed that the country’s inflation rate averaged 1.9 percent in September, the lowest in four years or since the 1.6 percent posted in May 2020.

The inflation recorded by food and non-alcoholic beverages slowed to 1.4 percent in September 2024. This commodity group posted an inflation rate of 3.9 percent in August 2024.

National Statistician Claire Dennis S. Mapa said the slowdown in inflation was driven by cheaper food and non-alcoholic beverages, which accounted for 69.1 percent of the downtrend.

Source : businessmirror