The government has finally tamed the high inflation rate, which last year fanned speculation of a rice shortage and threatened to derail the economic growth track.
The Philippine Statistics Authority reported that inflation in August dropped to a 35-month low of 1.7 percent from 2.4 percent in July, a development that could prompt monetary authorities to further reduce interest rate in a meeting later this month.
A further decline in the price of rice and non-alcoholic beverages and base effect caused inflation to fall sharply in August. The inflation rate in August last year stood at 6.4 percent before peaking to 6.7 percent in September and October in the same year.
The much-lower inflation rate last month is a clear signal for the Bangko Sentral ng Pilipinas to reduce interest rates on the funds it lends to private banks, which, in turn, will pass the lower cost of borrowing to consumers and other clients. The reduced cost of borrowings, hopefully, will spur companies to expand, hire more workers and eventually increase economic activities.
BSP Governor Benjamin Diokno noted that “ample domestic food supply conditions along with lower global oil prices have contributed to a manageable inflation environment.”
Surging rice prices resulting from inadequate supply had caused the inflation to spiral in the latter part of 2018. The sharp increase in the price of the basic commodity prompted lawmakers to pass the Rice Tariffication Law that essentially liberalized imports.
The legislative action had an immediate impact on rice prices. Hoarders were forced to unload their stocks and flood the market for fear of losing out to incoming rice shipments. Rice prices eventually stabilized on ample supply.
Rice and food inflation carry much weight on the consumer price index. As a result, lower prices of food items, which account for close to 32 percent of the CPI basket, have softened the inflation rate.
Authorities, especially the Department of Agriculture, must ensure the steady supply of food items like rice and vegetables to prevent inflation from behaving erratically again.