How to cope with inflation amid the fragility in the Middle East


By Rose de la Cruz


While it is right for the government to herald that it has managed inflation well in the last quarter of 2019, at the range it had set at 1.8 to 2.6 percent (where it settled in December at 2.5 percent last year), worries have been aired over the impact of the fragile Middle East situation, which could lead to tighter fuel supply and higher cost thus escalating all other items in the food and non-food baskets.


Year-on-year headline inflation for the whole of 2019 averaged at 2.5 percent, well within the Government's target range of 3.0 percent ± 1.0 percentage point for the year. Inflation in December 2019 rose to 2.5 percent year-on-year from 1.3 percent in the previous month but was within the Bangko Sentral’s expected range of 1.8-2.6 percent for the month. Likewise, core inflation— rose to 3.1 percent in December from 2.6 percent in the previous month. Month-on-month seasonally- adjusted inflation also increased to 0.8 percent in December from 0.2 percent in November.

Food inflation picked up in December as tight domestic supply conditions, triggered by weather-related supply constraints, led to higher prices of fish and vegetables. Meanwhile, non-food inflation also increased as a result of the upward adjustment in electricity rates due to higher generation charges. At the same time, prices of domestic petroleum products rose, reflecting higher oil prices in the international market.


Set up Fuel Reserve Now


Rep. Michael Romero, deputy speaker and president of the Party List Coalition Foundation Inc., reiterated his proposed National Strategic Fuel Reserves to cushion any inflationary impact.


He said the government can also suspend, at the right time, the excise tax on fuels which are part of the reserves. If need be, the excise tax can also be suspended for other oil imports on a calibrated basis. Our tariff and taxation laws give the President enough leeway for various temporary calibrations, he stressed.


Romero also urged the Department of Energy to order, if need be, the local oil companies to raise all their fuel reserve inventories to at least 30 days. This executive action would be a temporary measure the DOE can do now and is different from what he proposed in HB 4689 which is legislation. HB 4689 is not a law yet.


Protecting the poor


Romero explained that the 2020 national budget is built to protect the poor from inflation. Filipinos will experience a better life with the 2020 budget. There is P108.8 billion for 4Ps and P36 billion for unconditional cash transfers for the 4 million below the poverty line Filipinos. There's also P39 billion for free tertiary education and the P172.4 billion for universal health care for the poor and middle class.


As regards the sin taxes on alcohol, tobacco, and sweets, my suggestion to the Philippine Statistics Authority and National Economic and Development Authority is they should separate these products from the food basket of the consumer price index. This way, any inflation from the sin taxes do not statistically rub off on the food items.


“We already have lessons learned from the 2018 inflation worries. The measures for that are still in place,” Romero said.


Vegetables would be the challenge from January to February because of the cold weather in the Cordilleras. The Agriculture Department should, by now, have contingency measures in place. By this time, the African swine flu should be extinguished from all livestock sources in areas affected last year.


Agriculture Secretary William Dar and Transportation Secretary Art Tugade are competent managers. They know their respective agencies well. They can nip inflation in the bud if it raises its head again this year. 


Beef up food inventories, DA told


Meantime, AKO BICOL partylist Rep. Alfredo Garbin Jr. said this early, to prevent inflation spikes, the agriculture department must make sure there will be no supply disruptions in any of the major food items Filipino families consistently buy.


If frost adversely affects vegetables availability from Baguio and Cordilleras, there should be back up quick sources of veggies from elsewhere. Urban farming and hydroponics should be more aggressively promoted in Metro Manila and other urban centers.


For Bicol and Mindoro, both of which often get hit by typhoons and have higher transport costs because of their dependence on food from Metro Manila, the Agriculture Department must have alternate nearer sources of food supply either from Batangas or Panay, or maybe even Cebu.


To help bring down transport costs for Mindoro and Bicol, the concerned agencies can cut or remove administrative fees at ports and tollways to offset effects of excise taxes on fuel. These agencies should be willing to forego revenues from fees for the greater good of millions of Filipinos. (END)


NEDA’s take


Socioeconomic Planning Secretary Ernesto Pernia meanwhile asked the agriculture, forestry and fisheries sectors to increasingly adopt climate and disaster-resilient technologies and best practices in the medium to long term. 


Climate and disaster risks should also be considered in the program and project designs in the sector,” Pernia added.


He also mentioned other priority areas such as assisting farmers to shift to high-value, short-maturing, and high-yielding crops; and sustaining biosecurity measures and procedures until the ASF is fully eradicated. This will bring back confidence of consumers in pork products.


Pernia also cautioned that the escalating tension in the Middle East may disrupt global oil supply which could lead to a surge in the prices of petroleum products and overall inflation.


“The government should effectively manage expectations at the domestic front and be vigilant against any unwarranted increase in pump prices considering that the last tranche of excise tax increase on fuel products will be implemented this month,” he added.

Pernia further said that in the short-term, demand management and alternative sources of petroleum products should be explored, and over the medium to long-term, shifting away from fossil fuel and import dependence should be encouraged.


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