Address supply constraints that stoke inflation, gov’t urged

The Bangko Sentral ng Pilipinas (BSP) has done its part with its aggressive interest rate hikes, but to address the surge in local consumer prices, nonmonetary measures to address supply constraints are urgently needed, especially in the aftermath of Typhoon “Ompong.”

This is according to British banking giant HSBC, which said interest rate hikes alone were insufficient to fully curb inflation and inflation expectations.

The research was issued on Sept. 27 as soon as the BSP delivered a fresh 50-basis point increase in key interest rates, bringing the total interest rate increase this year to 150 basis points.

“We expect another 25-basis point hike in first quarter of 2019 and inflation to remain above-target in 2019 unless key reforms to curb prices are passed,” the bank said.

HSBC said Philippine inflationary pressures were still largely driven by the supply side, as seen by a widening gap between headline and core prices.

It noted that food, tobacco, and transport costs alone contributed 4.4-percentage points to the 6.4-percent inflation print in August.

Beyond monetary policy, HSBC believes these measures would be more “constructive” and have a bigger impact on taming inflation in the near term than solely monetary policy:

• Passage of rice tariffication bill, which will pave the way for the replacement of the quantitative restrictions on rice imports with tariff, removing unnecessary government intervention in the rice market.

• Allowing fish imports to be distributed in the wet markets across the country.

• Releasing 4.6 million sacks of rice available in warehouses of the National Food Authority (NFA) to markets across the country.

• Importing five million sacks of rice, which will arrive over the next one-and-a-half months, and another five million sacks early next year.;

• The Department of Agriculture and the Department of Trade and Industry to convene poultry producers and set up public markets where producers can sell this directly to consumers.

• The Sugar Regulatory Administration’s opening of importation of sugar to direct users to moderate cost to consumers.

• Issuance by the government of a directive to simplify licensing process for rice imports.

• Forming of a monitoring team for delivery of rice ports to National Food Authority warehouses and retail outlets.

• The Bureau of Customs to prioritize release of essential food items in ports.

“Timely implementation of these reforms is thus necessary to curb inflation and ensure that inflation comes down to within target by 2019, as the BSP pledged to secure,” HSBC said.