Washington-based World Bank said that rising food prices, particularly of rice, will push the country’s average inflation rate for 2014 to the upper end of the government’s 3-percent to 5-percent target range.
At its Philippine Economic Update, the lender said food price increases account for more than half of the inflation reflected by the Consumer Price Index, which the World Bank projected to reach 5 percent this year from 3 percent last year.
Rogier van den Brink, World Bank lead economist for the Philippines explained that 3.2 percent, or about three-fifths of the 4.9 percent inflation rate in July, came from food such as rice and corn.
Headline inflation climbed to 4.9 percent year-on-year in July, reaching its highest rate since October 2011.
“When the rice price goes up, the poor switch from rice to corn, and [when]they do so, they also drive [up]the price of corn. If you take rice and corn together, it creates a situation in which the majority of the inflation today is caused by rising food prices,” van den Brink explained.
Van den Brink said strong increases in the price of rice are particularly worrying because that hurts the poor disproportionately.
“They are the ones who spend most of their income on food. The reason why this is happening is that the supply situation is constrained. Basically, there is less supply than consumption. Even a little shortfall in supply and consumption will lead a rapid rise in food prices. That is what we are seeing now,” van den Brink said.
The economist said these increases point to the need to quickly increase the importation of rice, which is already part of the government’s agenda.
“The government traced the solution that the country needs to import rice. And I think that’s quite fine. This whole rice policy issue is so risky as we see now both in economic growth and the poor. It’s really high time to take another look at this. The government is absolutely right in importing rice,” he said.
While inflation pressures remain tilted to the upside, the central bank said it will continue to monitor developments and calibrate monetary policy, as needed, to help guide inflation expectations and address second-round effects that may develop.