BSP: New rate hike not likely on food ‘shocks’


SUPPLY shocks that led to high food prices in August could “dissipate fairly quickly,” making it unnecessary for the Bangko Sentral ng Pilipinas (BSP) to raise key interest rates anew.

BSP Governor Eli M. Remolona Jr., however, said the current situation would still not merit easing the central bank’s monetary policy. The Monetary Board is scheduled to meet next week.

In August, the Philippine Statistics Authority (PSA) reported that headline inflation rose to 5.3 percent from 4.7 percent in July. With this, inflation averaged 6.6 percent in the January to August 2023 period.

“I think if that’s all there is, if it’s just the uptick, as you know with food prices (which) caused the uptick, these kinds of supply shocks dissipate usually fairly quickly. If that’s all there is, there are no further supply shocks beyond that uptick in August, then it won’t be necessary to hike the policy rate. It won’t justify an easing but it won’t be necessary to raise the policy rate,” Remolona said.

Remolona said the BSP remains serious about price stability. He said while the BSP’s target range is 2 to 4 percent, this is not enough for the central bank.

This is especially crucial, given that the recent supply shocks experienced by the Philippines drove food prices to increase. Skyrocketing food prices significantly impact the poor in the country.

Based on the Consumer Price Index (CPI), the weight of food in the basket was 51.38 percent for the poorest households. The weight of rice, one of the top contributors to inflation in August, was at 17.87 percent for the Bottom 30 percent of households.

“The supply shocks are especially harmful to the poor. The food prices, the energy prices, so that’s part of the reason we have…a price stability objective,” Remolona said. “But hitting the target range is not enough. We wanna be comfortably within the target range for the year or so to follow.”

Earlier, successive typhoons caused commodity prices to surge in August with vegetables like tomatoes and the country’s staple, rice, leading the charge to increase inflation to 5.3 percent, according to the PSA.

The poorest Filipinos experienced an even higher rate of inflation at 5.6 percent as food inflation for the bottom 30-percent income households at the national level moved at a faster pace of 7.7 percent in August 2023 from 6.1 percent in July 2023 and 7.1 percent in August 2022.

However, the BSP as well as the National Economic and Development Authority (Neda) remain confident the country’s inflation rate will slow to 2 to 4 percent by the last quarter of 2023.

The prices of tomatoes nearly doubled, marking an inflation rate of 90.5 percent, the third highest it recorded in the series. Last year, tomato prices surged 130 percent in April 2022 and 125 percent in May 2022.

Regular-milled rice prices and well-milled rice prices also increased nationwide by 8.9 percent by averaging at P43.34 per kilo while well-milled rice prices grew 8.1 percent and averaged P47.63 per kilo. Overall, rice prices grew 8.7 percent in August 2023.

For the Bottom 30 percent, the inflation rate for rice was much higher at 9.1 percent while vegetable prices, including tomatoes, increased by 23.6 percent in August 2023.

The PSA explained that the impact of more expensive food items is greater among the poor because a larger part of their income is allocated for food. This does not mean the poor eat more but this is a function of their small incomes.

It added that paying for the same goods that richer households pay for at the same prevailing prices means a larger part of the poor’s meager income goes to food expenses.

Image credits: Michael Edwards |