Inflation is Beatable with Better Insights
Rising inflation is not at all insurmountable. Having reliable insights on supply and demand is crucial in keeping consumer prices steady, especially for a large market like the Philippines. Being on top of the situation will help us prevent sudden spikes in inflation as what happened last year.
The inflation rate fortunately slightly eased in February 2023 from a 14-year peak recorded a month earlier, signaling the uptrend in consumer prices may be over. Many economists, however, are convinced we are not out of the woods yet, as food inflation remains a source of concern.
But the government is showing a strong resolve to stabilize consumer prices. The steady cost of goods and services supports economic stability and sways other important indicators, such as hunger and poverty levels.
Per the data of the Philippine Statistics Authority, the inflation rate in February eased to 8.6 percent from 8.7 percent in January. With the latest figure, the Bangko Sentral ng Pilipinas may either raise the policy interest rate again or temporarily hold its monetary tightening cycle to give the market time to cope with the 50-basis-point adjustment on February 17. That put the Philippine borrowing rate at 6 percent from a record low of just 2 percent less than two years earlier.
What affects market sentiment is not only local inflation but also the price index in the United States, which keeps the Federal Reserve hawkish in its stance. This leaves equity investors and analysts jittery, as a Fed rate hike will most likely force other central banks such as the BSP to follow suit. Otherwise, there will be complications such as the depreciation of the local currency against the US dollar.
While higher interest rates will temper demand for credit, they are ineffective in addressing supply-side price pressures, such as shortages of food commodities. In fact, they are disincentives to farmers who need credit to plant rice, onion or sugar.
I am optimistic that inflation, here and abroad, will eventually go down as the global supply chain adjusts to new developments. China is reopening its borders while global crude prices are certain to come down from their 2022 peaks.
If we could also bring down local prices to manageable levels, the impact of economic growth—which reached 7.6 percent in 2022—would be more inclusive and more felt by the people. Economic and labor indicators show that the Philippines achieved a robust recovery from the pandemic, following the reopening of the economy. The high level of inflation, however, threatens to defeat these gains.
Acknowledging the challenge, the administration of President Ferdinand Marcos Jr. aims to bring down inflation, with a focus on monitoring food stocks and recalibrating strategies to alleviate the impact of high commodity prices. These include timely importation of commodities that the country could not sufficiently produce in a given period.
The proposal of the National Economic and Development Authority to convene a high-level inter-agency committee to advise the President on measures to keep food prices stable is also a step in the right direction.
For many years, we have produced and imported commodities based on historical market demand, without considering the fact that the Philippine population exceeded 110 million as early as 2021.
Suddenly, we are running short of many commodities like rice, onion and sugar—which we used to produce abundantly.
Food inflation remained high at 11.1 percent in February. Excessive food prices hurt the poor the most because they spend more than half of their income to feed their families. It is therefore in the best interest of the country to ensure food security to ease the burden on the vulnerable sectors of society.
Checking the root causes of high food prices will ease the plight of the poor and ensure economic stability in the years ahead.
Fighting inflation is not an exclusive jurisdiction of the national government. The Department of Trade and Industry encourages local government units and their price coordinating councils to assist in price and supply monitoring and stabilization. I also believe that a whole-of-government approach is necessary in managing inflation and pursuing food security.
In this connection, the Neda and the Department of Finance approved the creation of the Interagency Committee on Inflation and Market Outlook to serve as an advisory body to the President. The committee is tasked to lead the close monitoring of inflation, assess the supply-demand situation for energy and essential food commodities, provide forward estimates on various scenarios and submit timely recommendations to the President. This hopefully will avert excessive fluctuations in supply and prices before they play out in the market.
To have reliable insights, we should also watch global and regional developments that could affect commodity prices. As a part of the global market, the Philippines should work with other countries to bring in the commodities that it lacks and take advantage of export opportunities for local farmers and producers.
The quest for steady consumer prices requires good insights as well as the cooperation of everyone in the supply chain—from farmers and producers to traders and consumers—all working to balance supply and demand at all times.