Lessen import dependence, unnecessary spending to curb inflation — analysts

By Beatriz Marie D. Cruz, Reporter

THE GOVERNMENT of President Ferdinand R. Marcos, Jr. should cut unnecessary spending and boost law enforcement against anomalous activities in the agriculture sector to cool inflation, analysts said at the weekend.

“The uptrend in inflation indicates that the problem originates domestically,” Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila University, said in a Facebook Messenger chat. “Poor agricultural production especially because of El Niño is expected to further elevate overall prices.”

“The only thing the government can do now is to put its house in order by reducing unnecessary expenditures and formulate a strong industrial policy that can induce a structural transformation and raise productivity,” he added.

Inflation accelerated to 3.4% in February from 2.8% in January due to rising food, oil and transport prices. However, it is cooler than the 8.6% print a year ago.

Rice inflation quickened to 23.7% in February from 22.6% in January and 2.2% year on year. It also marked the fastest print for rice inflation since the 24.6% recorded in February 2009.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said law enforcement agencies must bolster its regulatory powers to manage prices.

“Effective monitoring and enforcement on price management/regulatory mandat… would be their major contribution that inflation is duly managed, especially in the enforcement of laws and regulations on prices to prevent undue overpricing/profiteering,” he said in a separate Messenger chat.

Last month, the Department of Agriculture began its investigation on claims that officials from the National Food Authority sold thousands of tons of rice to certain traders at low costs.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said he now expects headline inflation to average 4.2% this year, before easing to 3.8% in 2025.

“We now expect headline inflation to surge past 4% year on year starting in March with hefty contribution from rice consumer price index and latent drought effects on the prices of the other crops. We penciled in a high of 5% year on year for inflation in May (2024) before the deceleration begins in June,” he said in a Viber message.

Mr. Asuncion said core inflation would remain at the upper half of the BSP’s 2-4% inflation target and would be less vulnerable to food price shocks.

Core inflation, which excludes volatile prices of food and fuel, quickened by 3.6% in February year on year. The print was slower than 3.8% in the previous month and 7.8% a year ago.

PAUSE TO CONTINUEMeanwhile, analysts predict that the Monetary Board will keep key interest rates unchanged in the coming months.

“Since the government has strongly insisted that its decision on the matter will be data-driven, it is obvious that the latest inflation data won’t sway monetary policy makers to veer away from the current path of elevated interest rates,” University of Asia and the Pacific Senior Economist Cid L. Terosa said in an e-mail.

Last week, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said the central bank has yet to determine the timing of rate cuts as it is still “too soon to declare victory” over inflation.

At its February meeting, the central bank kept its target reverse repurchase rate steady at a near 17-year high of 6.5% for a third straight meeting. The BSP has raised borrowing costs by 450 basis points from May 2022 to October 2023 to tame inflation.

Security Bank Corp. Chief Economist Robert Dan J. Roces said the BSP will likely keep a “cautious monetary policy stance” despite the uptick in inflation.

“The BSP remains unlikely to resort to significant policy adjustments unless upside risks, particularly persistent food price increases, materialize and threaten the inflation target,” Mr. Roces said via Viber.