Taal Volcano eruption likely to push up food inflation—PNB research

The Taal Volcano will likely push up food inflation this month because the affected area is a main contributor to the supply of livestock and fish nationwide, Philippine National Bank said in a report Wednesday.

PNB cited the initial damage report by government agencies showing that P74.5 million worth of crops were affected in the CALABARZON region and 6,000 fish cages were at risk because of the high sulfur content in Taal Lake. 

“We worry that the Taal eruption may put pressure on food prices of livestock particularly chicken and hogs [as well as fish supply] since CALABARZON― Taal’s location and region most affected, is a significant contributor to local production of livestock,” the bank said.

Data from the Philippine Statistics Authority showed that CALABARZON was the second-largest producer of live chicken at 87,000 metric tons (liveweight) out of the total 428,800 MT produced in the third quarter of 2019.

The region is also the second-largest source of hogs at 17 percent of total hog production of 551,600 MT in the third quarter.

Inflation for fish picked up to 7.5 percent year-on-year in December 2019 as demand for pork substitutes went up amid consumers aversion to African swine fever.

PNB said high livestock food and fish prices might be allayed by low rice prices. It said that if supply shortfall persisted, the government might ease import constraints on these commodities while imposing regulatory price restraint measures in the affected areas. 

“While it’s early days for official estimates of damage to businesses, we sense macro downside risk from this event would take its toll on inflation rather than on domestic demand that could undermine GDP prospects,” PNB said.

It said given the event, the 2020 inflation trajectory could likely break out of the 2 percent to 2.5 percent range and perch at 3 percent year-on-year if not more, to kick start 2020.

Inflation rate in December 2019 settled at a six-month high of 2.5 percent.

PNB said it was important to deploy significant private and public resources in disaster-affected areas to address the damages and compensate for macro downside risks. 

Economists from First Metro Investment Corp. and University of Asia & the Pacific said in a briefing that inflation this year might stay low between 2.5 percent and 2.8 percent after settling at a manageable level of 2.5 percent in 2019.

They also downplayed any significant impact to economic growth of the Taal Volcano eruption, saying the natural disaster “is localized.” 

They said the immediate impact of the eruption would be on consumption spending because of the displaced individuals. 

Topics: Taal Volcano , Philippine National Bank , Philippine Statistics Authority , crops
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