MANILA, Philippines—Expect food prices to stay elevated in the coming months as the country runs in to some of the same problems it faced following Supertyphoon “Yolanda” (international name: Haiyan).
Despite being much weaker than Yolanda, Typhoon “Ruby” (international name: Hagupit) passed through many of the same areas that were devastated by Yolanda last year.
This is expected to result in further delays in the government’s already-slow rehabilitation efforts in the Visayas, which means that the restoration of supply chains could take longer.
Monetary officials may have to cut short their pause on interest rates as they seek to fight inflationary pressures, said Joey Cuyegkeng, economist at Dutch financial giant ING’s Manila branch.
“We blame (Yolanda) for some of the Philippines’ inflation problems,” Cuyegkeng said in a note to clients on Monday.
“(Ruby) dents hopes that a high-base effect in the food component will be a source of disinflation in early 2015,” Cuyegkeng said.
Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said it was too early to make an official assessment on the storm’s possible effects on prices, but said government action would be key in mitigating any potential price pressures.
“Timely government intervention to ensure adequate supply and distribution of essential goods would help temper price pressures that could stem from any production losses,” he said in a text message.
“The BSP will continue to monitor incoming data and stay attentive to potential risks to the inflation outlook,” he told the Inquirer.
Inflation started accelerating in November and December of last year due to damage to farmlands and infrastructure caused by Yolanda. This, together with port congestion in Manila and the volatility in financial markets, forced the central bank to tighten monetary settings to temper price increases.
In July and August of this year, inflation peaked at 4.9 percent. This year, inflation is expected to average 4.4 percent versus last year’s 3 percent.
The BSP earlier ordered banks to set aside more of their clients’ deposits as reserves in a bid to keep surplus cash in the economy from fueling excess consumer demand. Yields for special deposit accounts (SDA) were also raised to encourage banks to park more funds in the BSP vaults.
On top of these moves, benchmark interest rates were also hiked from record lows, raising the cost of money for borrowers.
Apart from higher inflation, the peso’s value may also suffer, Cuyegkeng said, as uncertainty over the economy’s ability to weather the storm might push investors out of the country.