Philippine inflation will ease from a five-year high once lawmakers approve a measure that will allow more rice imports, giving authorities scope to delay an interest rate increase, according to a senior economic planner.
Inflation that climbed to 4.3 percent in March will cool by at least 1 percentage point once a law limiting overseas purchases of the nation’s staple grain is amended by Congress by the end of the first half of the year, Economic Planning Undersecretary Rosemarie Edillon said in an April 27 interview in her office in Metro Manila.
Some economists are of the view the central bank should refrain from raising interest rates to see if lawmakers can pass the law on rice by June, Edillon said, citing discussions at the April 24 meeting of the Development Budget Coordination Committee. President Rodrigo Duterte last week backed the removal of import limits on the grain to boost stockpiles that were depleted.
“A 25-basis-point hike could stall growth,” said the 53-year-old economist who gave up a job in Australia to join the government in 2012. Edillon, who’s not involved with the monetary policy making, stressed that while the central bank supports growth, it is independent and may have other factors to consider. The economy likely expanded close to 7 percent in the first quarter, she said.
Cost of rice, the second-biggest component in the Philippine consumer basket, is at a three-year high as supply dwindled, adding to price pressures from a tax reform that boosted costs of fuel and sugary drinks. Central bank Governor Nestor Espenilla, who’s kept the benchmark rate steady, prompting some to observe that he was behind the curve on inflation, said on April 24 that the economy can withstand any tightening, signaling he’s ready to raise if necessary.
Edillon believes that inflation related to the tax reform has peaked in March and any pressures are likely to come from oil, rice and other items. Data due May 4 will show consumer prices probably accelerated to 4.5 percent in April from a year earlier, according to the median estimate of 12 economists surveyed by Bloomberg.
Philippines currently limits rice imports to a volume identified by the National Food Authority, which prioritizes buying from local farmers. The arrangement, which the World Trade Organization had been pushing to end, not only limits rice supply but also boosted domestic prices to twice the world prices.
Enabling a market-driven importation slapped with at least 35 percent in tariff will boost the supply of the grain and cut retail prices by as much as 7 pesos per kilogram from 44 pesos a kilogram, Edillon said.
To retain the rice restrictions, introduced in 1996, the Philippines had allowed the entry of more meats and other items to pacify trading partners, Edillon said. If the government fails to pass rice reform by June, Edillon said trading partners such as Australia, Canada and the U.S. could push for even more concessions in other agricultural products.
The state-run food agency subsidizes rice farmers by buying their output at high prices and selling them low to poor consumers.
“Assuming that you have 2.1 million families depending on rice farming, we are 22 million households in all in the Philippines that have to pay the high prices,” Edillon said. “It’s too lopsided.”