February inflation at 3.8%, El Niño impact tracked

By Cai U. Ordinario & Rea Cu, BusinessMirror, Mar 6, 20192542

THE coming dry spell brought by the El Niño phenomenon is a concern but will not likely affect the country’s inflation rate this year, according to the President’s economic team and local economists.

In a joint statement, the National Economic and Development Authority (Neda), Department of Finance (DOF) and the Department of Budget and Management (DBM) acknowledged that the El Niño might hamper food production, but the impact on inflation will not be alarming.

The Philippine Statistics Agency reported on Tuesday that inflation slowed to 3.8 percent in February, the same rate it registered in February 2018.

The Bangko Sentral ng Pilipinas (BSP) said the February figure is consistent with its expectations that price pressures are now further easing, and that it sees inflation to settle to the target range of 2 to 4 percent in 2019 and 2020.

The inflation rate for February 2019 is lower than the 4.4 percent recorded in January.

Meanwhile, the economic team cited data from the Philippine Atmospheric, Geophysical and Astronomical Services Administration (Pagasa), which showed the El Niño will continue until June 2019.

“Around 19 provinces are expected to experience drought this year including Metro Manila. Thus, the government must take proactive measures to mitigate its adverse impacts on the agriculture sector in the immediate term and to increase its resiliency against extreme weather conditions over the medium to long term,” the economic team said.

Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang and University of Asia and the Pacific (UA&P) School of Economics Dean Cid Terosa told the BusinessMirror that while commodity prices may increase due to El Niño, the increase would not be significant for two reasons.

Ang said the El Niño being predicted by the government is only a mild one and may not be as worrisome. He added that the country still enjoys ample food supply and he hoped a good harvest will keep high inflation at bay.

For his part, Terosa said the increase in inflation will not be as high as last year due to base effects. He said the El Niño phenomenon “can create a strong upward push on food prices. Hence, it can push up inflation. Since inflation was quite high last year, the possible increase in prices this year due to El Niño will still appear low relative to last year.”

Oil prices

Meanwhile, economists such as Action for Economic Reforms (AER) Coordinator Filomeno Sta. Ana III said that while inflation is still bound to meet the targets of the government, the El Niño phenomenon is a concern as well as rising oil prices.

Ibon Foundation executive director Sonny Africa told the BusinessMirror that while the recent slowdown in inflation in February was good for millions of Filipinos, the reprieve may be short-lived due to an impending increase in global oil prices as well as the absence of cheap National Food Authority (NFA) rice in the market after February. The latter is seen as one result of the rice tariffication law, which took effect on Tuesday.

Africa said the second tranche of oil excise taxes is probably not yet fully reflected and will likely be seen in the March figures onward. Philippine Statistics Authority (PSA) Deputy National Statistician Josie B. Perez said the impact of the excise taxes was not observed in the February inflation data.

The Ibon executive director also said the reprieve from high commodity prices would be short-lived because of the impact of the rice tariffication law on the availability of cheap rice in the market.

“The spending and consumption of the poorest Filipinos also cannot be underestimated. The looming end of affordable P27 NFA rice will mean that some 10 million of the poorest Filipinos will either have to pay as much as P1,225 more annually for the same amount of rice or eat less,” Africa said.

Lowest since March 2018

The PSA said the February inflation was the lowest since March 2018 when inflation was at 4.3 percent. Perez said the largest contributors to the slowdown in inflation were food and nonalcoholic beverages; alcoholic beverages and tobacco; and transport.

“This brings the year-to-date average inflation to 4.1 percent, which is now only 0.1 percentage point above the higher end of the government’s inflation target range. We are confident that the successive reforms recently rolled out will sustain this environment and support the growth of the Philippine economy,” the economic team said.

They also said they will closely track developments in the global oil market. While prices have increased by P7 to P8 per liter, pump prices in the country today remain low compared to 2018, they noted.

The Neda, DOF and DBM said the Land Transportation Franchising and Regulatory Board (LTFRB) should also step up efforts to cover more of the targeted beneficiaries of the Pantawid Pasada Program in order to temper a possible demand for transport fare hikes should oil prices keep rising.

“Of particular note is the sharp deceleration in inflation for transport to 1.2 percent in February 2019 from 2.5 percent in the corresponding month last year despite the increase in fuel excise tax,” they said.

Nevertheless, the economic team is upbeat that inflation is again starting to become manageable.

Chief Presidential Legal Counsel and Presidential Spokesman Salvador S. Panelo said the slowdown in inflation rate in February is proof that the response of the Duterte Administration in addressing inflation last year was effective. He said the Palace expects “further improvement and disinflation” as the economic team remains vigilant in monitoring commodity prices.

BSP on inflation

Meanwhile, in a statement on Tuesday, the BSP said: “The latest inflation outturn is consistent with the BSP’s expectation of the continued easing of price pressures. Inflation will likely settle within the target range in 2019 and 2020 as previous monetary and nonmonetary policy actions work their way through the economy,” the BSP said.

In line with the movements in the price of rice, the Central Bank said, “The recent enactment of the Rice Tariffication Act will further temper rice prices in the near term and help raise long-run productivity in the agricultural sector.”