DOF: PH to keep low inflation environment on strong agri sector

The Department of Finance (DOF) sees stable inflation this year but cited risks coming from higher food prices, which the government said would be addressed by supporting the agriculture sector.

“The country’s inflation rate remains favorable … Food production is crucial to maintaining this favorable macroeconomic scenario,” DOF Undersecretary Gil S. Beltran said in a report to Finance Secretary Carlos G. Dominguez III.

Headline inflation rose to 1.8 percent in 2016, the second straight year that the rate of increase in prices of basic goods settled below the government’s 2 to 4 percent target range, even as the December figure spiked to a two-year high of 2.6 percent.

For Beltran, “support to [food production] through infrastructure development, credit availability and insurance coverage is necessary to sustain this” low inflation environment.

Last week, the National Economic and Development Authority (Neda) reported that food inflation in December rose by a faster 3.7 percent compared to 1.8 percent a year ago and 3.5 percent last November.

Due to the holidays, “faster increases in the prices of bread and cereals (1.6 percent from 1.5 percent in November), fish (5.5 percent from 4.7 percent), and meat (1.8 percent from 1.5 percent) were recorded,” according to Neda.

The latest Philippine Statistics Authority data showed that as a whole, inflation in food and alcoholic beverages rose 2.5 percent last year, slightly slower than the 2.6-percent rise in 2015.

In particular, Beltran noted that in 2016, inflation in rice prices fell 0.3 percent year-on-year mainly on the back of production recovery and timely importation of the Filipino staple food.

Last week, Socioeconomic Planning Secretary Ernesto M. Pernia warned that due to weather disturbances “Karen,” “Lawin” and “Nina” that entered the country in the latter part of 2016 and damaged rice-producing farms, inflation was expected to pick up early this year. The commodity accounts for a “sizable” portion of the consumer price index (CPI) basket.

“The volatility in rice prices could affect the overall welfare of the Filipino families, particularly the poor who spend around 20 percent of their incomes on rice. Therefore, the government needs to promote more resilient practices for rice production to minimize the impacts of climate-related shocks,” said Pernia, who is also Neda chief.

Beltran also pointed to a jump in vegetable inflation, which rose 11.2 percent in 2016 from just 2.7 percent in 2015.

“Programs to enhance vegetable farming are needed to temper the double-digit inflation in this sector, which has continued for more than a year now,” Beltran said.

The Bangko Sentral ng Pilipinas expects inflation to average 3.3 percent this year, inching up toward the government’s target range.

Rajiv Biswas, Asia-Pacific chief economist for IHS Markit, projected inflation to pick up to 2.8 percent in 2017.

“This is due to the impact of higher average world oil prices following the recent Opec (Organization of the Petroleum Exporting Countries) decision to cut oil production by 1.2 million barrels per day as well as rising import costs due to recent peso depreciation,” Biswas explained.

“The peso is expected to remain weak against the US dollar in 2017 with the risk of further depreciation against the dollar as the US Fed is expected to hike rates [three more times] in 2017,” Biswas added.

For Ateneo de Manila University economics professor Alvin P. Ang, inflation would average 2.4 percent this year.

“We agree with the BSP that the 2 to 4 percent inflation range is possible until 2020,” Ang said.

University of Asia and the Pacific economics professor Victor A. Abola last week said he expects inflation to rise 3 percent this year.