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By Darwin G. Amojelar and Maricel E. Burgonio, Reporters
THE Asian Development Bank said an increase in
the Bangko Sentral ng Pilipinas’ (BSP) interest rates is unlikely
to temper rising inflation given the current trend of higher food
and fuel prices.
The regional lender issued this warning even as
the BSP said it would raise its policy rates if a possible transport
fare hike and the recent wage increase further bid up prices.
In a study released Saturday titled, “Has
Inflation Hurt the Poor? Regional Analysis in the Philippines,”
Hyun Son, ADB economist said it is important to direct government
policies toward stabilizing food prices. Son said that from last
year to March this year, rice prices have increased at an annual
rate of 22.9 percent from 3.4 percent between 2006 and 2007, thus
resulting in a 14.2-percent increase of the severity of poverty.
Prices of fuel have surged to 52.6 percent from
3.3 percent; water, to 10 percent from 5.1 percent; education, to
13.5 percent from 6.7 percent; medical expenses, to 16 percent from
4.6 percent; and transport, to 13 percent from 0.6 percent.
“Given these current trends, monetary policy
may not be an effective tool to combat rising inflation. Such
policies may push the economy into recession, which will hurt the
poor even more,” Son said.
Last month, the BSP kept its key policy interest
rates at 5 percent and 7 percent for the overnight borrowing and
lending windows. Its current overnight borrowing rate is at its
lowest level since May 1992.
Son noted that the recent increase in rice
prices is unprecedented, outpacing that of other basic commodities
except fuel.
As of 2006, the government reported that the
number of poor Filipinos numbered 27.6 million, 16 percent more from
the 23.8 million recorded in 2003. The ADB study used monthly price
data available from January 2000 to March this year. “This finding
indicates that rising rice prices hit the ultra poor the hardest,”
Son said.
The ADB said the poor allocate almost 60 percent
of their expenditure on food while the same proportion of total
expenditure is spent on nonfood among the nonpoor. While the poor
allocate more than 18 percent of their total expenditure solely on
purchasing rice, almost 14 percent of the total expenditure of the
nonpoor is spent on rentals.
“Such consumption patterns indicate that
rising food prices will have much greater adverse impact on the
standard of living of the poor,” the ADB economist said.
For the first three months of 2008 for instance,
the ADB said the Bicol region and the National Capital Region have
experienced an average increase in the price of rice by 38.6 percent
and 36.8 percent, respectively. The lender said the increase in the
number of poor people will be highest in the Visayas and the Luzon,
with the Bicol region forced into poverty from a 10 percent price
increase in rice.
Overall, a 10 percent increase in food prices
will create an additional 2.3 million poor people, while a 10
percent increase in nonfood prices will drive an additional 1.7
million people into poverty. A 10 percent increase in the price of
rice will force 0.66 million people into poverty, while a 10 percent
increase in fuel prices will push another 0.16 million into their
ranks.
“The National Food Authority is selling
subsidized rice to vulnerable groups in the Philippines at a much
lower price than the market price. If the subsidies are removed,
then rice will be sold at the market price,” Son said. Since last
year, the increase in food prices contributed to a reduction in the
average standard of living by 9.45 percent, the ADB said. “The
decline in the standard of living due to food price increases was
particularly greater for the poorest of the poor. At worst, these
households struggling to meet the minimum standards of living might
have no choice but to cut down their expenditures on health and
children’s education,” Son said.
Inflation is clear-and-present danger
“Right now, we find ourselves in situation
where growth can still be described as robust and the clear and
present danger is inflation,” BSP Deputy Gov. Diwa C. Guinigundo
however said.
As oil prices remain high, an increase in
transport fares—unlike the recent wage hike—will unsettle the
BSP’s inflation expectation, he told reporters. Monetary
authorities have factored in a P25 a day wage increase this year or
a 7 percent adjustment from the minimum wage of P362 per day.
Anything beyond P25 would further increase inflation, they warned.
Last month, inflation rose to a three-year high
of 8.3 percent driven primarily by high food and oil prices. Even
with this record high, the BSP expects inflation to decline in the
fourth quarter of the year.
Transport groups last week lobbied for more
gasoline subsidies and the lifting of the 12-percent valued-added
tax to help them cope with costlier fuel. Diesel prices at the pump
already breached the psychological level of P40 to a liter. They are
also pushing for a fare hike of P1.50 for the first four kilometers,
and P0.50 for the succeeding four kilometers.
“Once there are second-round effects, or there
are signs of disanchoring of inflation expectations then we should
assess [our policy],” Guinigundo said. “At this point, neutral
stance is still appropriate, but between now and the next advisory
committee and Monetary Board meeting, you can see a different
picture by that time. Things are moving very fast, very fluid,” he
said.
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