The Duterte administration is back on track insofar as managing inflation is concerned. This is clearly manifested in the continued easing of inflation to 5.1 percent in December, indicating that government efforts to address runaway prices are working.
While the average increase in prices of basic goods and services remained elevated for the whole of 2018 and beyond the range that the government had considered as prudent, the declining trend since the peak in October jibes with projections that inflation will be back to the ideal 2-4 percent range this year.
The Philippine Statistics Authority (PSA) noted that inflation in December rose at its slowest pace since the 5.2 percent recorded in June 2018.
Compared with November’s level, consumer prices in December slid by 0.4 percent, marking two straight months of month-on-month declines.
Last December’s rate was also the first time since August 2018 that inflation fell below the 6-percent level.
In September and October, the inflation rate stood at a more than nine-year high of 6.7 percent, forcing the government to immediately address food supply bottlenecks, especially of rice, as these had been identified as the factors causing inflation to rise.
An executive order issued by the President eased restrictions on the importation of basic food items; the resulting increased supply of meat, fish, seafood, vegetables and rice from abroad helped address price increases.
The cost of essential goods and services last year was also jacked up by the higher or new excise taxes slapped on such items as sugar-sweetened drinks, petroleum products as well as cigarettes and alcohol under the Tax Reform for Acceleration and Inclusion (TRAIN) Law and the Sin Tax Law.
For full-year 2018, inflation averaged 5.2 percent, above the government’s 2-4 percent target range. The average inflation rate in 2017 was only 2.9 percent.
The 2018 rate was also the highest since the 8.2-percent year-on-year increase in prices in 2008, making it a 10-year high, according to PSA data.
Looking ahead, economists see not much risks to inflation. The threat from imported inflation is low, as crude oil prices are forecast to remain soft despite planned production cutbacks by the Organization of Petroleum Exporting Countries.
Global oil demand is also not expected to pick up much as world economic growth is forecast to be modest this 2019.
Locally, the tariffication of rice imports is expected to take effect this year, and Malacañang has expressed hope that such a move will help lower rice prices by ensuring more than enough supply all year round.
Instead of imposing quotas on the volume of imports, the government will start allowing private traders to bring in as much rice imports as they want, provided they pay a government-imposed tariff rate.
The move of the Bangko Sentral ng Pilipinas against inflation by raising interest rates to address so-called “second round” inflationary effects (those coming from transport fare hikes and wage increase petitions) is also expected to keep price increases in check.
In all, the central bank jacked up its key policy rate — the benchmark used by financial institutions in pricing their loans — by 175 basis points (or 1.75 percentage points).
The declining price trend is a good sign, as low inflation means the government can ramp up spending on infrastructure projects such as roads, airports and bridges without fear of unduly pushing inflation higher.
With some P9-trillion worth of essential infrastructure projects lined up until the end of President Duterte’s term in 2022, the implementation of such projects will generate jobs that will allow Filipinos to cope better with the rising cost of living.
The easing in inflation augurs well for the country’s bid to sustain robust economic growth of above 6 percent a year. Taming price increases may also prove to be favorable for Mr. Duterte’s bets in the midterm elections this May.
Now, if only the administration and the legislature can see eye to eye on the 2019 budget, things should work out fine this year for the economy.