NEDA: Inflation may put poverty reduction target at risk

MANILA, Philippines — The attainment of the poverty reduction target for this year will be put at risk if inflation is not reined in, Socioeconomic Planning Secretary Ernesto Pernia said.

During the briefing of the interagency Development Budget Coordination Committee (DBCC) for the 2019 national budget at the House of Representatives yesterday, Pernia said most of the core indicators for the country’s medium-term development plan for 2017 to 2022 are on track to being attained.

These include the GDP growth rate, the GNI per capita growth rate, as well as maintaining modest growth in food inflation.

He noted, however, that poverty alleviation efforts for this year would be burdened if inflation is left unchecked.

The Duterte administration wants to reduce the national poverty incidence to within a range of 17.3 percent to 19.3 percent this year from a base of 21.6 percent in 2016.

The Family Income and Expenditure Survey (FIES), which is used to monitor poverty incidence, is conducted by the Philippine Statistics Authority (PSA) every three years. The FIES result for 2018 is expected by early 2019.

“We are hopeful that results would be encouraging given the sustained economic growth and the moderate food inflation in 2016 of 1.7 percent and of 2017 at 3.2 percent. However, this target may be at risk in 2018 if inflationary pressures are not addressed effectively and immediately,” Pernia told lawmakers.

Bangko Sentral ng Pilipinas (BSP) expects inflation to average at the upper end of the government target range at 4.5 percent in 2018 before easing to the two to four percent range in 2019.

Increase in the prices of goods and services spiked to 5.2 percent in June, the highest in more than five years. The Department of Finance sees inflation rising further to 5.3 percent in July. Monetary authorities expect inflation growth to peak in the third quarter of the year before gradually easing towards yearend.

Inflation has so far averaged 4.3 percent in the first half of the year, which is at the upper end of the revised DBCC target of four to 4.5 percent for this year.

BSP Governor Nestor Espenilla Jr. explained that most of the inflationary pressures at the moment emanate from the supply side of the economy on which monetary policy has little influence.

“We would like to emphasize that the current inflation pressures are driven at the first instance mainly by supply side factors relating to rising global oil prices, higher excise taxes and weather-related disruptions, things that are generally outside the scope of monetary policy,” he said during the budget briefing.

He noted, however, that inflation could also be stoked by the demand side of the economy in line with its fast growth trajectory and infrastructure push of the administration.

The BSP has already implemented back-to-back policy rate hikes in the first half of the year to keep inflation in check.

Espenilla said the BSP is committed to maintaining domestic price stability and would be “decisive” in monetary policy response.

“We would like to assure you that the BSP remains committed to its primary mandate of promoting price stability conducive to sustainable and inclusive growth,” he said. “The BSP stands ready to take decisive monetary policy responses to uphold this objective.”

He also expressed support for non-monetary policy interventions such as rice tariffication to help address inflationary pressures on the supply side of the economy.