Dominguez: 2022 poverty reduction target still achievable despite rising inflation

MANILA, Philippines—Inflation quickened to a five-month-high of 4 percent year-on-year in March, as expensive oil wrought by Russia’s invasion of Ukraine spilled over to domestic transport, food and utility prices.

The Washington-based World Bank on Tuesday (April 5) warned that high food and fuel prices may increase the number of poor Filipinos, but President Rodrigo Duterte’s economic managers said the goal to reduce the poverty rate to 15 to 17.5 percent remained within reach despite the prolonged COVID-19 pandemic and the indirect impact of the Ukraine-Russia war.

The rate of increase in prices of basic commodities matched the 4 percent posted in October 2021, and already hit the upper end of the Bangko Sentral ng Pilipinas’ (BSP) 2 to 4 percent target range of manageable price hikes. Philippine Statistics Authority (PSA) data on Tuesday showed that on a seasonally adjusted basis, consumer prices rose 1 percent in March compared to February levels.

National Statistician Dennis Mapa told a press conference that four-fifths of the inflation gain last month was contributed by three sectors which had been impacted by costly fuel.

Mapa said prices of food and non-alcoholic beverages rose 2.6 percent year-on-year in March, higher than the 1.2-percent rise in February. Utilities—housing, water, electricity, gas, and other fuels—saw prices increase by a faster 6.2 percent year-on-year last month from February’s 4.8 percent. Transport inflation jumped 10.3 percent year-on-year last March, faster than the 8.8-percent increase last February.

Gasoline prices climbed 36.7 percent year-on-year last March from February’s 32.1 percent, while diesel prices jumped 58 percent from 46.4 percent before the Ukraine-Russia conflict.

Headline inflation averaged 3.4 percent during the first quarter, ahead of the anticipated surge in prices in the second quarter as a result of the prolonged war. Faster March inflation was putting greater pressure on the central bank to finally tighten its policy rate, but BSP Governor Benjamin Diokno on Tuesday said the situation is best handled through other measures.

In a briefing on Tuesday, World Bank East Asia and Pacific chief economist Aaditya Mattoo said its simulation showed that if food, like cereal, prices increased by 10 percent in the Philippines, the poverty headcount would rise by about 1 percent or about one million people.

High fuel prices would be about one-third as large in terms of the adverse impact on poverty-reduction, Mattoo said.

As the health and socioeconomic crises wrought by COVID-19 reversed pre-pandemic poverty-reduction gains, Duterte’s economic team last year adjusted the 2022 poverty rate under the Updated 2017-2022 Philippine Development Plan (PDP) to 15 to 17.5 percent from the more ambitious 13 to 15 percent at the start of this administration.

As of the first half of last year, the Philippines’ poverty rate stood at 23.7 percent.

During Tuesday’s Philippine Economic Briefing, Finance Secretary Carlos Dominguez III replied “yes” when asked if the 2022 poverty-reduction target was still achievable amid elevated oil and commodity prices as a result of the Ukraine-Russia war.

Both Dominguez, who heads Duterte’s economic team, as well as National Economic and Development Authority (Neda) Undersecretary Rosemarie Edillon pointed to recent government moves to maintain food prices and their supply stable as ways to keep vulnerable households from sliding into temporary poverty.

Also, Dominguez said the government will give away a total of P47.5 billion in financial assistance to those badly hit by costly fuel:

• P41.4 billion in unconditional cash transfers to the bottom 50-percent households worth P500 per month, covering six month
• P5 billion in fuel subsidies to public utility vehicle (PUV) drivers
• P1.1 billion in fuel discounts to agricultural producers. The first tranche of fuel subsidies and discounts was already released last month. The second tranche would be out this month.

Dominguez said that on top of excess collections of the 12-percent value-added tax (VAT) slapped on expensive oil and advances of state-run corporations’ dividends, about P17 billion in cigarette tax stamps — reflecting tobacco excise payments—was paid in advance by two domestic manufacturers to finance these forthcoming cash aid.

In a report, ING Bank senior Philippine economist Nicholas Mapa said the number of items with faster inflation was likely to increase in the next few months as commodity prices in global markets stay high.

“The heat is now on the BSP to consider tightening its policy stance to corral inflation expectations and to avoid falling behind the curve,” Mapa said.

Analysts at Goldman Sachs agree with the trajectory of inflation, saying in a commentary that this will breach 4 percent within the next three months as prices of fuel and power continue to rise amid the further reopening of the domestic economy.

“We expect the BSP to start tightening monetary policy in the second half of the year, with a 25-basis point hike each in the third and fourth quarters,” they said.

Diokno noted that March inflation was within the BSP’s forecast range of 3.3 to 4.1 percent. He said last week that the regulator’s forecast was 3.7 percent.

“The BSP continues to have a wide arsenal of policy instruments to respond to possible adverse impact of external shocks,” Diokno reiterated on Tuesday.

Diokno added that the central bank supports the timely implementation of direct non-monetary measures to mitigate the impact of the Russia-Ukraine conflict.

“Previous episodes of supply-side shocks in the country have shown that these are best addressed through timely non-monetary policy interventions that could ease direct domestic supply constraints and prevent second-round effects on prices,” Diokno said, referring to hikes on wages and transport fares.

TSB