Inflation may decline in the second half – NEDA

HEADLINE INFLATION could start to ease in the second half of the year as pressure on food prices eases after El Niño weather conditions end, the head of the National Economic and Development Authority (NEDA) said.

“In the second half of this year, we expect food price pressures to ease as much of that food inflation has been imported in the sense that food prices, especially for basic products, have been rising on the global market. NEDA Secretary Arsenio M. Balisacan told reporters on the sidelines of a forum Monday afternoon.

Inflation rose for the second month in a row to 3.7% in March as a result of rising food prices. Food inflation accelerated to 5.7%, the fastest pace in four months, mainly driven by rice.

Rice inflation rose to 24.4% in March, the highest level since 24.6% in February 2009.

“But for rice, pressure is expected to ease as prices have reached the peak and will start to decline after June as the El Niño phenomenon subsides,” Mr. Balisacan said.

The El Niño weather phenomenon is expected to last until May, but the Philippines may continue to feel its impact until August, the Department of Science and Technology said earlier.

Mr Balisacan said he hopes inflation in April will fall within the Bangko Sentral ng Pilipinas (BSP) target range of 2-4%, although oil prices pose a risk.

He noted that inflation in April will likely be close to March’s 3.7%.

“[The] 2-4% is still a fighting target. Naturally, we keep a close eye on developments in the Middle East. If oil prices were affected by the development, there would be some pressure on us,” Mr. Balisacan said, referring to the conflict between Israel and Iran.

The local statistics office will publish April inflation data on May 7.

Mr. Balisacan said economic growth in the first half could be affected if inflation continues to exceed the target.

“[It’s] a challenge because domestic consumption, especially domestic consumption and investment, are very sensitive to inflation and interest rates,” he said.

Earlier this month, the Development Budget Coordination Committee (DBCC) revised its gross domestic product (GDP) growth target from 6.5-7.5% this year to 6.5-7.5% previously, amid geopolitical tensions, price increases and trade restrictions.

The local statistics office will release first-quarter GDP data on May 9.

“Now that food prices are starting to fall, that should be good for growth. But if energy prices continue to rise, this could of course have consequences for logistics, distribution and also for food prices. But we hope it will not be serious,” Mr. Balisacan said.

Oxford Economics economist Makoto Tsuchiya said he expects inflation to rise to 3.9% in April due to base effects. He also noted that sequential momentum was largely flat this month.

“While rice prices remain high, prices for other agricultural products, including fruits and vegetables, have started to decline, which should help ease inflationary pressures in the coming months,” he said in an email.

“Higher oil prices due to escalation of conflict in the Middle East are an emerging risk, but so far the impact remains limited.”

Monetary board member V. Bruce J. Tolentino said the government should keep a close eye on global developments that could affect commodity prices and fuel inflation.

“The elections in India are underway, and if Mr. [Narendra] If Modi wins, he will focus on his domestic priorities: ensuring that food prices in India are low. That means the export ban [on non-basmati rice] could continue, which will worsen inflation,” he said in a Viber chat.

Last year, India imposed export restrictions on non-basmati rice and other commodities to tackle rising domestic prices. The supply shortage pushed global prices higher, impacting the Philippines, one of the top rice importers.

Mr Tolentino noted that the ongoing war between Russia and Ukraine could cause a rise in fertilizer prices and limit wheat supply.

“It is crucial that the government maintains its efforts to invest in productivity-enhancing measures. These have paid off in the record rice harvests of the past two to three years,” said Mr Tolentino. — Beatriz Marie D. Cruz