By Cai Ordinario, June 6 2019; Business Mirror
Image Credit to Business Mirror
HIGH commodity prices may continue for the rest of the year given the expected increase in consumption demand and other factors that will make various food and nonfood items more expensive, according to local economists.
The impact of higher consumption has already affected inflation in May, which averaged 3.2 percent from 3 percent in April, as reported by the Philippine Statistics Authority (PSA). This is the first time inflation increased since the August-to-September period last year.
De La Salle University School of Economics Prof. Ma. Ella Calaor-Oplas said the higher spending of households, including the Chinese workers in the country, will continue to stoke the increase in prices in the coming months.
“There is no need to be surprised about the jump in the inflation. It is something expected because of the economic activity brought by the school opening,” Oplas said. “But we don’t only account inflation to the school opening. Remember that the inflow of ‘Chinese citizens’—although, I don’t have strong statistics on this right now—have driven not only the prices of real estate higher—sharp increase—but consumption as well.”
Oplas said she recently chanced upon a research on “the scary real-estate bubble” in the Philippines, which found that the “Chinese were really driving the sharp increases in real-estate prices.”
She explained that the presence of foreign workers from mainland China is already being felt in malls, as well as in the opening of various restaurants and other services that just cater to their needs.
Oplas also said the multiplier effect of government consumption this year due to various infrastructure projects, as well as the usual increase in commodity prices as the “ber” months approach may also prevent the government from meeting its inflation targets for the year.
The Bangko Sentral ng Pilipinas (BSP) aims to keep inflation at an average of 2 to 4 percent this year. Inflation in the January-to May-period which averaged 3.6 percent was still within government targets.
“Their [Chinese] presence and expenditures add to inflation. It’s not solely Pinoys spending,” Oplas said. “But I believe in our BSP to save the day and manage the inflation through monetary policy.”African swine fever
In a statement on Wednesday, Socioeconomic Planning Secretary Ernesto M. Pernia said the threat of African swine fever (ASF) entering the country is also an upside risk for inflation in the coming months.
The ASF is fatal to swine, which can die in about two days, but is not harmful to human beings. There is no known vaccine against the disease.
On Tuesday, Agriculture Secretary Emmanuel F. Piñol confirmed to the BusinessMirror that the Department of Budget and Management (DBM) has approved the Bureau of Animal Industry’s (BAI) proposal to allocate P85.14 million to strengthen quarantine measures against ASF.
Piñol said the DBM has given its nod to the fund, which will be included in the 2020 budget for the government’s ASF-prevention plan dubbed BABES —which stands for ban pork imports, avoid swill feeding, block entry at international ports, educate our people and submit samples.
“With the possible global pork shortage and the ban on importation of pork products from ASF-affected areas, domestic production of livestock should be beefed up to meet household and commercial demand,” Pernia said.
He added that the increase of rice prices in the international market, and the volatility in global oil prices are also upside risks to inflation in the coming months.
However, Pernia said that with the influx of imported rice, the DA must increase its assistance to the less competitive rice farmers in their shift to planting other high-value crops.
“The Rice Competitiveness Enhancement Fund must be properly utilized in a timely manner to support the affected farmers as mandated by the rice tariffication law,” Pernia said.
May 2019 inflation
In a briefing, National Statistician Claire Dennis S. Mapa said the main factors for the increase in inflation in May were higher food and nonalcoholic beverages, which increased to 3.4 percent, and housing, water, electricity, gas and other fuels which increased to 3.3 percent.
Mapa said specific items under the food and nonalcoholic beverages index that fueled inflation were other cereals, flour, cereal preparation, bread, pastry and other bakery products, which increased to 3.7 percent; fish, 4.2 percent; fruits, 4.6 percent; vegetables, 12.5 percent; and food products not elsewhere classified, 6.8 percent.
In terms of the housing, water, electricity, gas and other fuels index, Mapa said electricity and firewood contributed the most to the increase as these posted a growth of 1.5 percent and 7 percent in May, respectively.
“El Niño is a recurring problem that requires an immediate and long-term response. The country needs to have a more robust solution to mitigate the impacts of extreme weather conditions and climate change considering that the Philippines is prone to natural disasters,” Pernia said.
“Faster price adjustments in food and nonalcoholic beverages drove the uptick in headline inflation as weak El Niño conditions persisted, and brought significant damage to the agriculture sector in the midst of the election period’s strong consumption demand,” he added.Base effects
Other economists such as Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang and private-sector economist Calixto V. Chikiamco traced the increase in inflation mainly due to base effects.
Ang said inflation is expected to slow down in the coming months since inflation in the third and fourth quarters are very high.
In 2018, inflation averaged 5.1 percent but peaked at 6.7 percent in September and October. September marked the end of the third quarter while October was the beginning of the last quarter of the year.
“Look at the month to month figures. I think it still shows a deceleration. May [inflation data could] just be a base effect from last year’s figures,” Chikiamco added.
Mirroring inflation at the national level, consumer prices in Metro Manila registered an uptick to 3.4 percent. This was slightly higher compared to the 3.1 percent in the previous month but lower than the 4.9-percent posted in the same month last year.
In areas outside of Metro Manila, inflation was at 3.1 percent in May, higher than the 3 percent in April but slower than the 4.6 percent posted in May 2018. The average inflation in these areas reached 3.5 percent.