The local unit of Dutch financial company ING Bank expects inflation to remain benign in 2020 as the Rice Tariffication Law will continue to temper the price of the staple.
ING Bank Manila senior economist Nicholas Mapa said in a report that Republic Act No. 11203, or the Rice Tariffication Law, was “possibly the single most effective inflation fighting development in 2019 and will likely help keep inflation in-check going into 2020.”
“Thus, with the ability to import rice on demand and better weather ahead [no El Niño forecast in 2020], we can expect inflation to bounce and settle in 2020, gradually rising towards Bangko Sentral ng Pilipinas’ 3 percent inflation target and average 3.2 percent in 2020,” Mapa said.
Mapa said inflation was the bane in 2018 after it surged to 6.7 percent amid a shortage in rice supply and severe weather disturbances (typhoon Ompong) that pushed the price index for food to as high as 9.7 percent.
The all-important staple of rice was in the spotlight, recording double-digit inflation as supplies dwindled on late importation.
“The passage of RA 11203 or the law that removed quotas on rice imports has helped replenish the stock of local rice, forcing prices downward and helping stabilize a good 10 percent of the CPI basket,” Mapa said.
The BSP expressed optimism last week that inflation rate would continue to be benign until 2022, as demand-induced price pressures were likely to remain manageable over the target horizon.
The interagency Development Budget Coordination Committee, in its meeting on Dec. 11, decided to keep the current inflation target at 2 percent to 4 percent for 2020 to 2022. The government’s inflation target is defined in terms of the average year-on-year change in the consumer price index over the calendar year.
“The announcement of the inflation target is in line with the BSP’s commitment to transparency and accountability as well as the forward-looking approach in the conduct of monetary policy,” the BSP said in a statement.
“The 3.0 percent ± 1.0 percentage point inflation target for 2020 to 2022 continues to be an appropriate quantitative representation of the BSP’s medium-term price stability goal that is conducive to the balanced and sustainable growth of the Philippine economy,” it said.
It said the latest inflation forecasts indicated within-target inflation over the policy horizon, even as the balance of risks to the inflation outlook continued to lean slightly toward the upside in 2020 and toward the downside in 2021.
“While price volatilities cannot be ruled out, inflationary impulses from international commodity prices are expected to remain modest. This expectation is supported by the current assessment of favorable demand-supply balance and lower pass-through to domestic inflation of exchange rate and international commodity price inflation,” it said.
“Similarly, demand-induced price pressures are likely to remain manageable over the target horizon. Improved productive capacity of the domestic economy, fueled by higher infrastructure investments by the national government alongside the implementation of purposeful structural reforms, implies continued robust economic growth amid a low and stable inflation environment,” it said.