Premature to claim victory vs food inflation – AMRO

MANILA, Philippines — The Association of Southeast Asian Nations + 3 Macroeconomic Research Office (AMRO) said it may be too soon to claim victory over food price inflation in the ASEAN+3 given risks to global food prices posed by uncertainties in the Russia-Ukraine war and the El Niño weather phenomenon.

“It may be premature for ASEAN+3 economies to claim victory over food price inflation just yet. The outlook for global food commodity prices remains precarious,” the AMRO said in its latest note.

While global food and energy commodity prices have fallen from their highs in 2022, AMRO said there are risks to the global food outlook that could also affect the ASEAN+3.

Among these risks is the collapse of the Black Sea Grain Initiative, which allowed Ukraine to export food and fertilizers from three ports to the world market.

The initiative expired last July 17, after Russia suspended its participation in the deal.

AMRO said this could unsettle wheat, maize, oilseed and fertilizer markets and potentially raise prices.

Another risk to the global food prices is El Niño.

“El Niño conditions that are forecast for mid-2023 through early 2024 could result in record-high temperatures and altered rainfall patterns, likewise affecting crop yields and prices,” AMRO said.

It said ASEAN+3 economies also need to monitor the impact of last year’s spike in fertilizer prices on global food supply.

While fertilizers provide necessary nutrients to boost crop yields, their use has declined globally over the last two years, including in China as well as in palm oil and rice-producing countries in Southeast Asia amid a sharp rise in prices.

“Going forward, depressed fertilizer usage could dampen domestic agricultural production and keep food prices elevated in the ASEAN+3,” AMRO said.

It said reduced fertilizer usage due to high import costs along with adverse weather conditions, has already led to lower harvests and increases in international sugar and rice prices this year, which are also feeding into retail prices in Indonesia, Thailand, Singapore and the Philippines.

“If not mitigated, rising sugar and rice prices could keep food inflation elevated, as sugar is an input for several processed food products while rice is a consumer staple in Asia,” AMRO said.

Earlier this month, National Statistician Dennis Mapa said that while the trend in the Philippines’ overall inflation is going down, there are still risks from items including rice, with prices of the staple slowly increasing.

“The increases are relatively small on the average and we will check with other agencies what the reasons are for the increases,” he said.

To manage potential price pressures, AMRO said ASEAN+3 monetary authorities have to maintain their hawkish stance despite having raised policy rates since early 2022 in response to higher inflation.

“At this point in the inflation cycle, it is critical that monetary authorities maintain a tightening bias until underlying price pressures have clearly stabilized,” it said.

It also said measures to provide relief to high inflation in the ASEAN+3 region should be withdrawn once price pressures abate.

AMRO also cited the importance of regional cooperation through resource sharing and risk management.