Standard Chartered Bank cuts Philippines' inflation forecast through 2015

By: Maricel E. Burgonio, InterAksyon.com
September 5, 2013 8:10 AM

MANILA - Standard Chartered Bank (SCB) revised downwards its inflation forecast for the Philippines in the next three years amid the country’s progress towards rice self-sufficiency.

In a report, SCB said inflation could average 2.9 percent this year, lower than the previous estimate of 3.1 percent. For 2014 and 2015, price increases could average 3.9 percent and 3.5 percent, respectively, also down from the earlier forecast of four percent.

“Our forecasts indicate that inflation will remain within Bangko Sentral ng Pilipinas’ (BSP) inflation target bands of 3 to 5 percent in 2013 and 2014 and 2 to 4 percent in 2015,” SCB said.

“Our dovish inflation view is supported by the progress made in food security in the Philippines. Other important inflation drivers, housing and energy, are likely to remain subdued over the next few quarters,” the British bank said.

Food inflation has been the primary driver of headline inflation for the past five years, accounting for 36.3 percent of the consumer price index (CPI).

Food inflation is expected to bottom out next year owing to base effects, but to remain close to headline inflation levels, SCB said.

Benign food inflation is likely to ensure that headline inflation remains a secondary concern for policy makers, the bank said.

“Our models show that the Philippines has become more resilient to food price movements,” SCB said.

Among the sub-components of food inflation, rice inflation is the key driver, accounting for the biggest share at 8.9 percent, higher than those of meat at seven percent, fish at 5.8 percent, dairy at 3.3 percent and vegetables at 3.2 percent.

In addition, rice prices are less seasonal than those of vegetables and more volatile than of meat. However, rice inflation has been only a marginal contributor to food inflation in the past two years, SCB said, adding that fish has become the largest contributor in percentage point terms.

“In our view, fish prices represent the greatest upside risk to food inflation at present. Fish inflation has increased in recent years, accounting for the largest proportion of food inflation. In the short term, a huge diesel spill in Manila Bay in August threatens to keep fish prices high,” the bank said.

SCB said the targets set by the Department of Agriculture are having an impact. The Philippines Development Plan targets include achieving 100 percent rice self-sufficiency by 2013, up from 84.7 percent in 2004-2010.

 REACTION:

According in this article, the Manila- Standard Chatered Bank (SCB) stated that there is a decrease of the expected inflation in the Philippines for the next 3 years. They forecast inflation could average 2.9% this year which is lower than the expected estimate of 3.1%. For 2014 and 2015, SCB conclude a slight change of inflation from 4% to 3.9 and 3.5%, respectively. The primary driver of inflation for the past 5 years is said to be the food inflation.



Right at this moment, people are already having a difficulty in finding ways in order for them and their families to have food to eat. Some are on the streets, and others are competing each other in applying jobs. For me, a change of this kind of inflation has both positive and negative effect in the economy of our country.

The most common disadvantage of this food inflation is the increase of food products in the market. When price rises, there is an effect to our exported goods because other countries would probably look for a cheaper ones and if that happens, a decline in our economy might occur. Another effect of the price increase for the unfortunate leads to a narrow chance of surviving. Lastly, in businesses that are related in foods might decide to downsize their employees and we know that downsizing of employees lead to the increase of our unemployment rate.

On the other hand, inflation has an advantage of increasing the salaries and wages of workers. In this article, it is good to know that the increase inflation is not really that material. Hence, the average inflation is lower than the expected.