Holistic Approach to Inflation
The inflation rate to a certain degree is predictable. Prices as measured by the consumer price index readily go up in times of a supply shock, as in the case of a turbulent global oil price market. They also spike seasonally—or when prices of commodities such as rice and vegetables increase on lean harvests because of adverse climate like typhoons that destroy crops and disrupt the supply chain.
The Russian invasion of Ukraine over a year ago immediately sent world oil and wheat prices surging as the two warring nations are major suppliers of the two commodities. This geopolitical conflict caused the global inflation rate to rise, prompting the United States and other major economies to raise their interest rates in their attempt to curb spending.
The Philippines also suffers high inflation on an intermittent basis because of animal diseases that curtail poultry and meat production. With a fast-growing population, it will be difficult for the Philippines to play catch-up with the demand, especially on low agricultural and livestock output.
Government intervention measures, however, can address the high inflation rate and provide temporarily relief to a supply shortfall and the nuances of domestic trading. President Ferdinand Marcos Jr. and his Cabinet are taking a holistic approach in combatting a high inflation rate that could derail the nation’s economic goals.
President Marcos on May 26, 2023 signed Executive Order 28 creating the Inter-Agency Committee on Inflation and Market Outlook. Beyond monitoring price movements, the committee plans to enhance government coordination in managing inflation and mitigating the impact of rising commodity prices.
Of course, it is too early to say that the committee’s work has paid dividends. But I am confident that it is the right direction to take in fighting high prices that erode the purchasing power of the ordinary Filipino consumer.
The low inflation report last week is a piece of good news and a clear sign that we are winning the battle against high prices.
The inflation rate in May, per the report of the Philippine Statistics Authority, dropped further to a near one-year low of 6.1 percent from 6.6 percent in April on slower increases in the prices of transport, food and non-alcoholic beverages. The May inflation was the slowest since the 6.1 percent registered in June 2022, although still higher than the rate of 5.4 percent a year ago.
President Marcos was pleased with the declining inflation rate, calling it a welcome development and a sign of continued progress towards affordable prices of goods.
The annual decline in the index of transport led the drop in the headline inflation at -0.5 percent from 2.6 percent in the previous month. The heavily weighted food and non-alcoholic beverages, per the PSA report, also pulled down the overall inflation during the month with a lower inflation rate of 7.4 percent from 7.9 percent in April. The annual rate increase of alcoholic beverages and tobacco index, meanwhile, slowed down to 12.3 percent during the month.
We will likely see a further drop in the inflation rate in the coming months once the inter-agency committee I mentioned earlier begins its systematic job. The group, among other things, aims to put a coordinated and proactive monitoring system in place to keep food and energy prices within the target range.
The government, in my opinion, can once and for all neutralize inflation through an integrated approach by involving concerned government agencies in monitoring the primary drivers of inflation. The committee, per the statement of National Economic and Development Authority Secretary Arsenio Balisacan, will keep tabs on current trends and data on local and international prices and the level of domestic production, import arrivals, climate outlook and other relevant supply and demand information for key commodities.
The looming El Niño also poses a challenge to state planners. The Philippines may see lower production of rice and some crops once the prolonged dry spell kicks in. I am sure the inter-agency committee is keeping an eye on El Niño because of its inflationary impact.
Again, I am confident the Philippines will overcome El Niño and other inflationary factors through a comprehensive approach that requires the participation of local government units and concerned government agencies.