Food price hikes feared as El Niño strengthens
Food prices may further increase in the coming months as climate experts see greater chances that the El Niño weather phenomenon will eventually become a “strong” occurrence based on indicators observed over the past months.
When this happens, agricultural production will likely be reduced due to unfavorable weather characterized by an extended dry period. Food prices will consequently increase thus affecting inflation projections.
In their latest monthly bulletin, the US Climate Prediction Center (CPC) said the climate phenomenon had a 95 percent chance of continuing through the northern hemisphere winter or December to February.
The CPC said observations made in July showed that El Niño continued as indicated by above-average sea surface temperatures across the equatorial Pacific Ocean.
Tropical atmospheric anomalies were also consistent with an occurrence of El Niño, with low-level winds “anomalously” blowing toward the central equatorial region of the Pacific—going west from the easter side of the ocean and going east from the western side.
“Given recent developments, forecasters are more confident in a ‘strong’ El Niño event, with roughly two in three odds of an event reaching or exceeding 1.5 degrees Celsius (above normal) for the November-January seasonal average,” the CPC said.
Last week, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. cited the possible impact of El Niño as one of the factors that could result in inflation readings exceeding forecasts.
The BSP forecasts that while the monthly print has been going down since 8.7 percent in January, inflation at 4.7 percent in July was still high.
Moreover, monetary authorities expressed concern that upside risks such as El Niño were pushing up prices of food.
And while forecasts also see inflation in a path that would put the readout further lower and within the government’s target band of 2 to 4 percent, Remolona said on Friday that the BSP was ready to resume policy rate increases, if such upside risks materialize.
Fitch Solutions Group subsidiary BMI said earlier that based on five occurrences of “severe” El Niño since the 1990s, rice production in the Philippines was one of the worst-hit in Asia whenever the climate phenomenon hits overdrive.
