MANILA, Philippines — Philippine inflation, which is now higher than most emerging economies in Asia, could jump higher in September after typhoon Ompong flattened vast swathes of farmland over the weekend.
In a commentary released Wednesday, Dutch financial giant ING Groep NV said the threat of "Ompong" to food supply could add to the country’s inflation woes after the monster typhoon lashed northern Luzon—which produces much of the nation's rice and corn.
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Rice is a staple food in the Philippines, accounting for nearly a tenth of the basket of basic goods and commodities a Filipino purchases.
Latest government data show retail prices for regular-milled rice have hit P45.71, 20.26 percent higher than the same period last year. This reading does not include the projected crop damage caused by "Ompong."
“Given this backdrop, we may continue to see accelerated price pressures on the overall September inflation print, with food and energy prices possibly lifting inflation past 6.5 percent growth,” ING Bank Senior Economist Nicholas Mapa said.
“The market expects inflation to peak in the third quarter and although the September reading may remain elevated, we continue to believe that the path of inflation will eventually move towards target going into 2019,” Mapa added.
Inflation jumped to 6.4 percent in August, the highest level in almost a decade, as oil and rice prices picked up. Higher excise taxes slapped on other goods also pushed up inflation.
The Bangko Sentral ng Pilipinas has raised its policy rates by a cumulative 100 basis points from May to August in a bid to fight inflation. The central bank also vowed to undertake “strong monetary action” in the upcoming rate-setting meeting on September 27.
Based on latest data released by the country’s disaster-monitoring agency, the powerful Ompong’s damage to agriculture was pegged at P14.34 billion. In rice alone, the typhoon destroyed P8.97 billion worth of the crop.
Meanwhile, "Ompong" affected about 171,932 farmers in the Cordillera Administrative Region. For 2019, the Department of Budget and Management has allocated P3.4 billion to a loan program for farmers.
BSP Deputy Governor Diwa Guinigundo on Tuesday said the central bank continues to expect inflation to peak in the third quarter of the year and gradually ease from there, despite the damage caused by typhoon Ompong to agriculture and expected rise in consumer demand in the Christmas shopping season.
Guinigundo also signalled a fourth rate hike this year in a bid to fight inflation and lend some strength to the weakening peso, which has depreciated by almost 8 percent against the dollar since the start of the year.
“Although the protracted inflation overshoot may be tied in large part to bad weather and rising oil prices, monetary authorities will look to anchor inflation expectations and remain vigilant against a possible de-anchoring,” ING Bank’s Mapa said.
“Thus, the BSP will need to maintain their current hawkish stance and continue to assure markets that they remain committed to bringing inflation back to target over the medium-term,” he added.