Double-whammy: Typhoons to cause an inflation tsunami

Storm damage to hike inflation

By Jun Vallecera and Mia Gonzalez, Business Mirror | 10/27/2009 11:33 PM

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MANILA – The Bangko Sentral ng Pilipinas (BSP) and the National Economic and Development Authority (Neda) agreed that the coming weeks will see an “uptick” in inflation due to several factors, among which are the massive P23.5-billion damage to agriculture of the recent storms, rising fuel prices and the approaching Christmas season.

BSP Governor Amando Tetangco Jr. said the forecast inflation for the month ranges from a low of 0.8% to as high as 1.7%, which already “incorporates the estimated impact on agricultural output of typhoons Ondoy and Pepeng, as well as the increases in domestic fuel pump prices.”

Whatever the final figure within that range, it is still enough to alter the earlier baselines, although the average for this year should still fall within original target ranges, he added.

Acting Socioeconomic Planning Secretary Augusto Santos traced the expected rise in prices to the growing population, rising output cost and slowly dwindling hectarage planted to rice because of the conversion of rice fields to other crops, urbanization and industrialization.

The fact that inflation had actually fallen steadily from a high of 7.3% in February to a 20-year low of 0.1% in August, moderating to 0.7% in September, is of small consolation to families who must now suffer additional stress with having to deal with higher prices, particularly on food and stagnant income, according to observers.

“While the continued manageable inflation environment provides the flexibility to preserve the stimulus to economic activity, there is a need for circumspection due to additional upside risks to the inflation outlook,” said Tetangco.

He mentioned the upside risks as including increasing signs of recovery in real-sector activity, the extensive macroeconomic stimulus in advanced economies, the prevailing El Niño conditions in the Pacific area, and the petition of the National Power Corp. to increase power rates.

The year’s penultimate Monetary Board meeting is seen to set the tone of monetary-policy crafting over the next 12 months, when the biggest question is how soon or late the BSP’s easing stance should end.

The Australia Reserve Bank has already started the so-called exit process by raising interest rates on concerns of incipient inflation, something that Tetangco does not concern himself too much with at the moment.

Santos also said at a Cabinet meeting at the home of Kampi Rep. Aurelio Gonzales of Pampanga that while local food prices are stable at the moment, certain “threats” remain.

“Food prices in our country surged in 2008 but it has receded this year, 2009. The latest is 2% in September. NSO [National Statistics Office]-Neda still has to come out with its inflation report for October. We expect an uptick in food inflation because of the typhoons,” he said.

He said that of the total Ondoy and Pepeng damage on agriculture of P23.5 billion, P19.7 billion is in palay and P732.5 million in corn. “Palay harvests are thus expected to decrease, which is worsened by the cut in the government’s mandated 90-day rice inventory to 60 days.”

He said the Food and Agriculture Organization (FAO) has reported that “a weakening of the US dollar and the sharp rebound in energy prices could exert upward pressure on international rice prices.”

Agriculture Secretary Arthur Yap told the meeting that there are still rice harvests “coming in” and the mechanisms for private-sector importation are “in place.”

Yap noted that despite the significant impact of the recent typhoons on palay, “it is worthy to note that the prices of well-milled and regular milled rice this year as against last year is even lower.”

“We have enough stocks,” he said, to which President Arroyo added, “We don’t have any shortage. Our worry is the income of the Filipino farmers, but not the supply.”

Yap added that prices of vegetables have been stabilizing, with the exception of native pechay, eggplants and ampalaya; but said the latter two vegetables can be temporarily supplied by the Visayas, Camarines Norte and Camarines Sur.

Santos also said that according to the FAO report,  “a drop in the global demand and credit availability had immediate repercussions, and because of this crisis, rich nations are shying away from the pledges they made before on food aid to poor nations.”

He said that among the Neda recommendations to the Cabinet is to “lend our voice to help convince the rich nations to maintain their food- aid commitments to the poorest countries.”

SOURCE: ABS-CBN News Online, storm-damage-hike-inflation

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