By Rea Cu, May 8 2019; Business Mirror

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EVEN though election-related spending started in March, the country’s inflation level remained on a downtrend, posting only 3 percent for April coming from 3.3 percent last March.

The 3-percent inflation level for April 2019 is the lowest posted since January 2018 at 3.4 percent, making it a 16-month low.

This was slightly below the median market forecast of 3.1 percent, and well within the Bangko Sentral ng Pilipinas’s (BSP) forecast of 2.7 to 3.5 percent for the period.

When asked if midterm election-related spending had an effect on the country’s recent inflation print, as campaign season for the local election kicked off last March, some economists explained that this provided little impact. They said national elections, which are not due until 2022, may have more of an effect on the country’s inflation level.

“Election spending appears to have been moderated by the realization that spending alone won’t assure desirable results. If it were presidential and vice presidential elections, the effect would have been greater [on inflation],”
University of Asia and the Pacific Dean of Economics Cid L. Terosa told the BusinessMirror in a text message.

National Economic and Development Authority (Neda) Undersecretary Rosemarie G. Edillon explained that if there is ample supply to meet the demand in line with election spending, then chances are inflation will remain steady.

“The campaign activities will increase demand, but if there is ample supply then inflation will still be tame,” Edillon told the BusinessMirror.

For Asian Institute of Management (AIM) Associate Professor Emmanuel A. Leyco, the effects of election related spending can be better seen in terms of the country’s gross domestic product (GDP) growth instead of its inflation rate.

“The effect of political spending may be seen in GDP growth rates, where more productive activities may have been stifled in favor of media spending,” Leyco told the BusinessMirror in a text message.

According to former Dean of the University of the Philippines (UP) School of Labor and Industrial Relations (Solair) Rene E. Ofreneo, election-related spending may have had little impact on April inflation despite the number of people running for office, since some may have used imported products for their campaign materials. “Election spending, obviously, [has] limited impact on inflation, [despite the number of individuals running for office]. Maybe the election materials they used were all imported, and because of this, it has a limited impact on local production,” Ofreneo told the BusinessMirror.

De La Salle University School of Economics Vice Dean Mitzie Irene P. Conchada also pointed out that election-related spending had little impact on the country’s inflation level for April as supply was able to meet demand for the month.

“It might be a different story once the impact of El Niño hits in the next months,” Conchada told the BusinessMirror.

PSA reports

The Philippine Statistics Authority (PSA) reported on Tuesday that the country’s inflation rate slowed down to 3 percent from 3.3 percent in March and 4.5 percent in April 2018.

PSA Assistant Secretary and Officer in Charge Josie B. Perez reported that the main drivers for the decrease in inflation for April were the slowdown in the indices including: food and nonalcoholic beverages at 3 percent from 3.4 percent in March and 5.9 percent in April 2018; alcoholic beverages and tobacco at 9.9 percent from 10.8 percent in March and 20 percent in April last year; as well as that of housing, water, electricity, gas and other fuels with 3.2 percent—coming from 3.4 percent the previous month and from 3 percent in April 2018.

The price of clothing and footwear also posted a decrease, settling at 2.4 percent from 2.5 percent in March and 2.2 percent in April 2018; furnishing, household equipment and routine maintenance of the house was at 3.2 percent from 3.4 percent in March and 2.8 percent last year; health, which settled at 3.7 percent from 3.9 percent the previous month and 2.8 percent in April 2018; and restaurant and miscellaneous goods and services at 3.5 percent, from 3.7 percent in March and 3.4 percent in April 2018.

Indices that posted an increase for the month include: transport at 3.8 percent coming from 3.3 percent in March and 4.9 percent in April 2018; and communication at 0.4 percent from 0.3 percent in March and 0.3 percent last year.

Recreation and culture remained at 3.1 percent for the month; education remained at negative 3.8 percent.

Core inflation decelerated to 3.4 percent for the month coming from 3.5 percent in both March 2019 and April 2018.

Food groups that contributed to the slowdown in inflation include: rice at 0.02 percent from 1.4 percent in March; corn at negative 3 percent from negative 2.4 percent; other cereals, flour, cereal preparation, bread, pasta and other bakery products to 3.6 percent from 3.7 percent; meat at 3.9 percent from 4.1 percent; fish at 3.3 percent from 4.8 percent; oils and fats at 3.4 percent from 3.8 percent; as well as sugar, jam, honey, chocolate and confectionery at 6.2 percent from 7.1 percent in the previous month.

Efforts validated—Pernia

“The recent inflation reading validates our efforts toward stabilizing inflation so that the country’s buoyant economic growth, along with key reforms, remains unimpeded,” said Socioeconomic Planning Secretary Ernesto M. Pernia.

This also brought down the year-to-date inflation to 3.6 percent, which is within BSP’s inflation target for 2019.

Reflecting the trend of overall price increases, inflation in the National Capital Region slowed for the eighth consecutive month to 3.1 percent in April 2019.

“The continued low inflation of rice can be attributed to the stable rice supply in the country, with more imported rice expected to arrive in the country as the Rice Liberalization Act takes effect,” Pernia added.

He said, though, that the government should remain watchful of upside risks to inflation such as the ongoing El Niño phenomenon, possible increase in utility rates and volatility in international oil prices.

“Given unstable global oil prices, the government should prioritize rolling out the second tranche of its social mitigating measures under the TRAIN [Tax Reform for Acceleration and Inclusion] law, such as the Unconditional Cash Transfer and Pantawid Pasada, especially now that the 2019 national budget has already been signed into law,” he said.

Perez said the effects of election spending may be seen in the coming inflation reports after the April inflation print.