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Low demand puts brake on prices

Chito Lozada



After two consecutive months of upswings, the inflation rate in August eased to 2.4 percent due to a slowdown in increases in prices of food and non-alcoholic beverages which was a level economic experts described as “benign.”

The moderation in prices, however, was the result of falling consumer demand amid a recession.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the rise in prices is within the central bank’s 2.5 to 3.3 percent forecast rise and was “consistent with the expectation that inflation will remain benign over the policy horizon.”

“The balance of risks tilts toward the downside owing largely to potential disruptions to the domestic and global economic activity of the ongoing pandemic,” he said.

The inflation rate is slower than the 2.7 percent last July but is faster than year-ago’s 1.7 percent. Average inflation in the first eight months stood at 2.5 percent at the lower half of the government’s two to four percent target band for 2020 to 2022.

Monetary officials forecast this year’s inflation to average at 2.6 percent while a 3 percent and 3.1 percent increase is seen for 2021 and 2022, respectively.

Consumers retreat
Nicholas Mapa, senior economist at ING Philippines, said prices moderated in August as low demand caused inflation pressures to fade much faster than anticipated with the economy now in recession.

“The capital region was placed under a more stringent quarantine level for the first two weeks of the month due to an acceleration in Covid-19 infections, which may have slowed ailing demand even further,” Mapa explained.

Headline inflation was dragged lower by the index-heavy food subcomponent which increased by 1.7 percent, down from 2.4 percent in the previous month, Mapa indicated.

“Renewed lockdowns and relatively elevated COVID-19 daily infection count may have delayed the recovery. For the balance of the year, we expect inflation to remain at the lower end of the BSP’s inflation target band given depressed economic activity with the stronger Philippine currency also limiting imported inflation,” the ING economist noted.

Enhance supply chain
An improvement in the supply chain efficiency in agriculture is needed to ensure a low and stable inflation amid the ongoing COVID-19 pandemic and impending typhoons, acting Socioeconomic Planning Secretary Karl Kendrick Chua said.

Chua said the easing inflation was the result of unhampered movement of food and other essential commodities across the country, as well as the benefits of the rice tariffication law that ensured ample supply of the staple grain.

“As we continuously implement varying levels of community quarantines and localized lockdowns in the country, we need the government and the private sector to tap local agricultural produce and maximize the use of digital technologies to ensure stability in the supply chain,” Chua noted.

Chua also underscored the need to effectively manage the supply and allocation of agricultural commodities to ensure enough buffer stock, prevent wastage and spoilage and minimize the losses of farmers. This includes facilitating the delivery of vegetables and other agricultural commodities to Metro Manila and other regions.

“Investments in cold storage facilities and innovations in food packaging and processing need to be increased as well, alongside the boosting of agricultural production, both in rural and urban areas, through the government’s ‘Plant, Plant, Plant program,’” Chua said.

To mitigate possible losses and to ensure quick response to possible disaster-prone areas, he also highlighted the need for preemptive preparations on production support, crop insurance and other recovery programs, as La Niña is seen to come by late September or October.

Data released by the Philippine Statistics Authority also showed that core inflation, which excludes volatile food and oil items, decelerated to 3.1 percent from last July’s 3.3 percent, resulting in an average of three percent. Core inflation in August last year is lower at 2.9 percent.

Liquidity ‘ample’
The BSP chief added the “prevailing interest rate environment and ample liquidity in the financial system reflect the significant monetary policy easing and liquidity enhancing measures undertaken thus far by the BSP.”

These are seen to provide sufficient support to economic activity, he explained.

“Early signs of recovery in domestic activity are being noted, with further improvements expected as containment measures are relaxed further, and firms and households adjust better to the post-pandemic operating environment,” the country’s top banker indicated.

Monetary authorities, he indicated, “will continue to evaluate the transmission of the BSP’s policy actions to the economy along with the recently approved fiscal measures to address the public health crisis.”

“The BSP stands ready to deploy all available measures in its toolkit in fulfillment of its policy mandate as it continues to assess the impact of the global health crisis on the domestic economy,” he vowed.