Inflation risks seen from ‘La Niña’

Inflation rose to 1.1 percent year-on-year in March mainly on food and fuel price increases, with the government projecting the yearend figure to settle at the low end of the 2 to 4 percent target.

The Philippine Statistics Authority (PSA) reported yesterday that the rate of increase in prices of basic goods last month inched up from 0.9 percent in February, although slower than the 2.4 percent posted a year ago.

The March figure was within the Bangko Sentral ng Pilipinas’ (BSP) forecast range of 0.6-1.4 percent, Governor Amando M. Tetangco Jr. noted in a text message to reporters.

“This is also consistent with our latest runs showing that over the policy horizon, inflation will slowly move up to within target. For 2016, we see inflation close to the low end of the government target range,” Tetangco added.

In this regard, the BSP chief said they “see no urgent need to change stance of policy.”

In a separate statement, Economic Planning Secretary Emmanuel F. Esguerra noted that in the first three months of 2016, inflation remained relatively low and stable in line with expectations over the policy horizon, which was likely to support consumption growth.

Moving forward, the National Economic and Development Authority (Neda) chief warned of risks to inflation due to the dry spell. “Although El Niño has entered its weakening stage, the risk of higher food prices remains given the onset of the summer season. Thus, we must also monitor our rice supply and importation to avoid supply disruptions which could result in volatilities in the price of rice,” Esguerra said.

“The Roadmap for Addressing the Impact of El Niño (Rain) needs to be accelerated and sustained, particularly in the areas that have declared a state of calamity. The Rain aims to ensure food security by increasing the supply of food, keeping food prices stable, and implementing measures to protect farmers’ incomes,” the Neda chief said.

While implementing Rain, the government would need to prepare for La Niña, which, according to international weather forecasts, might likely bring in higher-than-normal volume of rainfall in the Philippines in the latter half of the year, he added.

The Neda noted slight increases in the prices of food items such as meat, fish, milk, cheese and eggs, bringing food inflation last March rising at a faster 1.6 percent from 1.5 percent in February.

Despite the prolonged dry spell due to El Niño, however, Esguerra pointed out that rice prices remained lower than in the previous year (-1.7 percent in March from -2 percent in February) and have been declining consistently since October 2015.

Likewise, the price of vegetables, while remaining elevated since November 2015, has trended down after peaking in January, declining by 2.9 percent in March from the previous month, for a total decline of 7.8 percent since the beginning of the year, said Esguerra, who is also Neda director general.

“We have been closely monitoring price movements and looking at factors that influence commodity prices, especially food consumed by the poor. Aware of El Niño, the government has put in place a program to mitigate the impact of the drought. We need to ensure adequate supply of food and provide assistance to affected farmers,” Esguerra said.

Neda also noted increases in the prices of gasoline, liquefied petroleum gas, diesel and kerosene last month resulting from cutbacks in production and exploration of international energy firms due to the continued soft oil prices.

“Outlook for oil prices in the medium term remains modest given a backdrop of strong world crude oil supply growth and weak global demand. Overall, the continuing environment of low international oil prices remains a positive development for the country considering that we are a net importer of oil,” Esguerra said.