If passed into law this year, the plan to slap a 35-percent tariff on imported rice and removing the import quota will reduce the inflation rate by up to 0.4 percentage point, Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla Jr. said Tuesday.
Also, Espenilla reiterated during the Second Economic Journalists Association of the Philippines (Ejap) Economic Forum that while the BSP’s estimates showed that headline inflation would peak in the third quarter, “it will not probably hit 6 percent.”
In July, inflation reached a new high in more than five years of 5.7 percent, bringing the seven-month average to 4.5 percent, above the government’s full-year target range of 2-4 percent.
“Supply-side factors are the main drivers of overall inflation. These include rising international oil prices, higher excise taxes and weather disturbances that affected food supply,” Espenilla explained.
Last month, the basic jeepney fare increase to P9 from P8 previously as well as higher utility rates jacked up the rate of increase in prices of basic goods and services, the BSP chief added.
Espenilla nonetheless said that “the inflation momentum is slowing down, as headline inflation has generally declined in month-on-month terms from 0.9 percent in January to 0.5 percent in July.”
“In particular, after spiking in the first quarter of 2018, the month-on-month changes for electricity, tobacco and sweetened beverages are seen to be slowly tapering off as we head deeper into the third quarter of the year. This supports our analysis that the impact of the excise tax adjustments is transitory,” according to Espenilla.
The BSP chief said that the inflation momentum would “continue to lose steam” in the near term and return within the target range by next year.
“The main downside risks to inflation are the following: Slower global economic growth due to protectionist policies in advanced economies; geopolitical tensions in the Middle East, along with potentially lower rice prices resulting from the proposed replacement of quantitative restrictions (QR) with tariffs and the deregulation of rice imports,” Espenilla said.
President Duterte said in his third State of the Nation Address that his administration saw rice tariffication as one solution to ease rising inflation.
“We need to switch from the current quota system in importing rice to a tariff system where rice can be imported more freely. I ask Congress to prioritize this crucial reform, which I have certified as urgent today,” the President said last July 23.
Economic managers have been pushing for the amendment of the decade-old Republic Act No. 8178 or the Agricultural Tariffication Act, which had put the rice import quota or so-called QR in place.
In 2014, the WTO allowed the Philippines to extend its QR on rice until June 30, 2017, in a bid to buy more time for local farmers to prepare for free trade in light of the government’s goal of achieving rice self-sufficiency.
Last year, Mr. Duterte extended the rice import quota for three more years under Executive Order No. 23.
Since the government imposes a quota on rice imports, domestic prices are vulnerable to shocks resulting from meager supply.
The QR puts the burden of rice supply and demand on the government, whereas market forces are being limited by the quota system.
Analysts said importation should be done by the private sector in order to allow market forces to determine prices.
The extended QR slaps a 35-percent duty on imported rice under a minimum access volume (MAV) of 805,200 metric tons. Importation outside of the MAV limit are levied a higher tariff of 50 percent.
The Philippines’ most favored nation rate—the additional tariff imposed when imported outside of Asean—on the commodity remains at about 40 percent.