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The Department of Finance (DoF) is proposing to temporarily slash the tariff rates for rice imports to zero to curb the spike in retail prices of the national staple.

“We need to adopt a comprehensive approach to help ensure that rice supply remains sufficient at reduced prices,” Finance Secretary Benjamin E. Diokno said in a press chat on Friday.

He said the DoF proposed the “reduction of the 35% rice import tariff rates, both ASEAN (Association of Southeast Asian Nations) and MFN (Most Favored Nation) rates, temporarily to zero percent or maximum of 10% to arrest the surge in rice prices.”

This as inflation unexpectedly quickened to 5.3% in August from 4.7% in July, driven by the rise in pump prices and food costs, particularly rice.

The government began implementing a nationwide price ceiling on rice last week, as part of efforts to address increasing prices of the national staple amid reports of hoarding and price manipulation by cartels.

The ceiling is at PHP 41 per kilo for regular milled rice and PHP 45 per kilo for well-milled rice.

Mr. Diokno said price ceiling on rice would likely last only a month. He noted that price controls, if “closely implemented,” are effective in the near term.

“However, the government recognizes that it also has adverse effects if allowed to linger for a longer period. The President has directed the economic team to implement measures that will mitigate the negative impact of the price controls on rice retailers and farmers,” he said.

The Finance chief admitted he was “surprised” when Mr. Marcos first announced the price cap on rice on Sept. 1. At that time, Mr. Diokno was in Tokyo with National Economic and Development Authority Secretary Arsenio M. Balisacan, and Budget Secretary Amenah F. Pangandaman for the Philippines-Japan High-Level Joint Committee Meeting.

“We were in Japan when that was announced. I was beside Arsi (Mr. Balisacan). We were surprised, of course,” he said in mixed English and Filipino.

On the proposed cut in rice tariffs, Mr. Diokno said this can only be approved when Congress is in recess. Congress is set to adjourn on Sept. 30 and resume session on Nov. 6.

The tariff reduction will also only require an executive order (EO) for its implementation.

“There’s no need for Congress… The President may adjust the tariff when Congress is not in session,” he said. “There is just a hearing, then the Tariff Commission will recommend, it needs an EO. The Tariff Commission will draft an EO to the President.”

Mr. Diokno said the temporary tariff cut will only be applied to rice and not include the other MFN rates for pork, corn and coal.

“The relaxing of the tariff is forward-looking because the price of rice is going up globally… rice is really, I think, the biggest contributor to inflation,” he said.

Food inflation quickened to 8.2% in August from 6.3% in the previous month. This was partly driven by rice inflation, which surged to 8.7% in August from 4.2% in July.

Apart from the tariff cut, Mr. Diokno said the government is seeking “cooperation with tollway concessionaires and operators for the temporary exemption of trucks that cater to agricultural goods from the increase in toll fees.”

Mr. Diokno noted that this would mean trucks would still pay the regular toll, but not the recently adjusted increases.

“The private concessionaires agreed with the proposal, they’re just trying to define the guidelines on how to identify these delivery trucks,” Finance Undersecretary Zeno Ronald R. Abenoja said.

The Toll Regulatory Board (TRB) will be in charge of issuing the guidelines for the toll exemption, he added.

To curb rice price increases, Mr. Diokno said the government will encourage the timely importation of rice by the private sector and fully implement the Super Green Lane to expedite rice imports.

“There is also a need to curb noncompetitive behavior in the rice industry by aggressively pursuing cases of hoarding, smuggling, and economic sabotage; strictly monitoring the prices of imported rice in the logistics chain; and encouraging the public, including retailers, to report individuals violating price caps on rice,” Mr. Diokno said.

“At the same time, we have to pursue programs to protect vulnerable sectors by safeguarding our farmers from the effect of the price ceiling; provide targeted subsidies to small traders and retailers of rice; and provide support to low-income households to address the impact of the surge in rice prices,” he added.

The Department of Social Welfare and Development began distributing a PHP 15,000 cash subsidy to small rice retailers on Saturday.

Mr. Diokno said that there is a need for “timely, granular and accurate information on the status of the rice industry.”

“In this regard, the government must also devote more resources to satellite-based technology and data analytics to complement the dashboard,” he added.

Inflation is on track to return to the central bank’s 2-4% target range in the fourth quarter, but unlikely to overshoot the target in the first quarter of 2024, Finance Secretary Benjamin E. Diokno said.

“By the first quarter of next year, instead of overshooting — because we expect overshooting before — we will be right smack in the middle of the 2-4% range,” he told reporters on Friday.

Inflation unexpectedly quickened for the first time in seven months in August, as food and transport costs jumped. Headline inflation accelerated to 5.3% in August from 4.7% in July, ending six months of decline.

For the first eight months of the year, inflation averaged 6.6%. This is still higher than the central bank’s revised 5.6% inflation forecast for this year.

Despite the faster August inflation, Mr. Diokno noted that the Bangko Sentral ng Pilipinas (BSP) still sees inflation falling within the 2-4% target range by the fourth quarter.

“While there was a spike in the inflation rate for (August), the continued decline in the year-to-date inflation rate suggests our (Development Budget Coordination Committee) full-year 2023 inflation rate assumption of 5-6% remains doable,” he said.

BSP Governor Eli M. Remolona, Jr. last week said the central bank will likely revise its full-year inflation forecast for 2023 at its Sept. 21 policy meeting.

Mr. Remolona has also said that inflation will likely return to the 2-4% target in the first quarter of 2024.

Meanwhile, former BSP Governor Felipe M. Medalla said inflation is now likely to remain above the target band for up to 22 straight months or until January 2024.

August marked the 17^th consecutive month that inflation went above the BSP’s 2-4% target range.

“My original forecast was that inflation will be higher than target in 20 consecutive months (or November 2023) — the previous longest period wherein that was the case was 15 months. With the global rice price shocks, we could end up with 22 consecutive months of higher-than-target inflation,” he said in a text message.

Global rice prices soared after India banned the export on non-basmati white rice in July. India accounts for over 40% of global trade.

Even as inflation remains above the target range, Mr. Medalla said the BSP’s credibility will not be at risk.

“We have always said that the forecast of when inflation will be back within target was based on the assumption that there will be no new major shock. And clearly what happened to global rice prices was a surprise to anyone without a crystal ball,” he said. 

University of Asia and the Pacific (UA&P) Senior Economist Cid L. Terosa in an e-mail said that it will be difficult for inflation to ease to the 2-4% target in the fourth quarter due to supply-side constraints. 

Supply constraints contribute significantly to inflation, but “are not susceptible to change in monetary policy,” he noted.

“Moreover, the BSP does not have direct control over the actions of wholesalers and retailers, who are critical conduits of increases in prices,” he said.

Mr. Terosa also noted that the August headline inflation rate of 5.3% was expected due to high food and energy prices.

August inflation was mainly driven by the faster annual increase in the heavily weighted index for food and nonalcoholic beverages, which rose to 8.1% in August from 6.3% in the previous month.

Rice inflation surged to 8.7% in August from 4.2% in July due to tight supply, marking the fastest pace since the 9% print in November 2018.

Transport inflation quickened to 0.2% in August from -4.7% in July, ending three months of decline.

China Banking Corp. Chief Economist Domini S. Velasquez said the price cap on rice imposed by the government may cause inflation to ease in September, and return to within the 2-4% target in November.

The government on Sept. 5 began implementing a price ceiling on rice at PHP 41 per kilogram for regular milled rice and PHP 45 per kilogram for well-milled rice.

“The reaction of traders to the rice price ceiling merits close attention and monitoring,” Mr. Terosa said.

The Foundation for Economic Freedom earlier said the rice price cap may cause harm to retailers, farmers, and even consumers, as it will only “aggravate the current tight rice supply situation into a full-blown rice crisis.”

Meanwhile, Ms. Velasquez noted that upside risks to inflation have emerged in recent months.

“Vegetable prices are at risk due to consecutive typhoons, sometimes hitting northern Luzon. Oil prices will likely stay elevated especially with the recent production cuts of Saudi Arabia and Russia,” she said.

“Lastly, this month we expect the regional wage board decisions that could fan demand-side inflation.

Last week, the Regional Tripartite Wages and Productivity Board in Region IV-A (Calabarzon) issued a wage order which provides a 9-11% increase from the current daily minimum wage rates, ranging from PHP 35 to PHP 50 depending on the geographical area and labor sector. The higher daily minimum wage for the region, which is considered a manufacturing hub, will take effect on September 24.

For his part, Mr. Terosa said supply shortages in agricultural products, higher fuel prices and the start of holiday-related spending may stoke inflation in the coming months.

“Nonetheless, I believe the BSP is still on top of things since it continues to mindfully address what it can control,” he said.

“Unfortunately, there are several external conditions that the BSP cannot influence or control such as weather disturbances, supply chain disruptions, policy actions of foreign governments, and geopolitical events, which have tightened supply of various commodities considerably,” he added. 

To tame inflation, the Monetary Board has raised borrowing costs by 425 basis points, bringing the benchmark interest rate to a near 16-year high of 6.25%.

Ms. Velasquez said the BSP may not respond with another rate hike in September. “For now, we expect BSP to stand pat at 6.25% but remain hawkish if inflationary expectations become de-anchored.”

Mr. Medalla also said that the BSP is unlikely to cut policy rates this year. 

“It is also worth noting that the current policy rate will be higher than the forecasted monthly headline inflation rates in the last four months of 2023 and average inflation in 2024,” he said. — Keisha B. Ta-asan with inputs from Luisa Maria Jacinta C. Jocson

Inflation is now likely to land within the Bangko Sentral ng Pilipinas’ (BSP) target by the first quarter of 2024, not the fourth quarter of this year, BSP Governor Eli M. Remolona, Jr. said.

“We’re not quite clear about the fourth quarter (of 2023) yet. We’re still looking at the way our tightening measures have been working their way through the economy on the demand side. We’re not sure about the fourth quarter because if there are further supply shocks, then the numbers will be different,” Mr. Remolona said in an interview with BusinessWorld Editor-in-Chief Wilfredo G. Reyes on Sept. 4, a day before the government reported a faster-than-expected 5.3% inflation for August.

BusinessWorld’s one-on-one interview with Mr. Remolona will be streamed on BusinessWorld and The Philippine Star’s Facebook pages, as well as the BusinessWorldTV YouTube page, at 11 a.m. today (Sept. 8).

“My best guess is it will be the first quarter of 2024, before we get into the (2-4%) target range,” Mr. Remolona said.

The BSP will likely upwardly revise its full-year forecast of 5.6% for 2023 at the next policy meeting on Sept. 21, he said.

Inflation unexpectedly accelerated for the first time in seven months in August, as food and transport costs rose. The consumer price index (CPI) quickened to 5.3% in August from 4.7% in July, above the 4.9% median estimate in a BusinessWorld poll conducted last week.

August marked the 17^th consecutive month that inflation surpassed the central bank’s 2-4% target range. 

For the first eight months of 2023, inflation averaged 6.6%.

Mr. Remolona said the central bank still has space for further tightening.

“If inflation continues to be an issue, then we could raise policy rate from 6.25% to a higher policy rate. If we think the tightening is already very effective, then we wouldn’t need to increase further,” he said.

The BSP has kept its key policy rate at a near 16-year high of 6.25% for the last three meetings. It has hiked benchmark interest rates by 425 basis points (bps) from May 2022 to March 2023 to curb inflation.

Aside from inflation, Mr. Remolona said the Monetary Board will also be taking into account recent economic output data at its next policy-setting meeting on Sept. 21.

“That (output data) for us is an indicator of how much we’ve done on the demand side to compensate for the pressures from the supply side,” he said.

“We could still hike. We have a sense of how high we can hike before growth becomes an issue, we compute what we call the natural rate and we’re still below the natural rate. We have room to hike because of our calculations.”

Mr. Remolona said the Philippine economy can still grow by 6% this year, the lower end of the 6-7% growth target for 2023, if the government ramps up spending.

Gross domestic product grew by a slower-than-expected 4.3% in the second quarter, partly due to government underspending. This brought the six-month average to 5.3%, still below the government’s 6-7% target this year.

Meanwhile, Mr. Remolona said the US Federal Reserve is still hawkish, but the Jackson Hole speech by Chairman Jerome H. Powell in August had more uncertainty compared with the previous Federal Open Market Committee (FOMC) statement.

“But I think, in my opinion, they’re slightly behind the curve in terms of tightening. I think we’re closer to being on track in terms of tightening,” he added. 

The US Federal Reserve hiked borrowing costs by 25 bps at its meeting in July. This brought the Fed funds rate to 5.25-5.5%, its highest level in 22 years.

The next meeting of the FOMC is scheduled for Sept. 19-20.

Mr. Remolona, however, noted that several financial crises occurred after the Fed raised its policy rate “very sharply.”

“In November 1994 for example, for the first time the FOMC raised its policy rate by 75 bps, within a few months we saw the Tequila crisis. And within the two years we saw the Asian (financial) crisis,” he said.

“This time, the FOMC has been even more aggressive than it was in 1994, so this makes me worried about what might happen down the road,” he said.

Earlier this year, markets around the world were rattled by the back-to-back collapse of Silicon Valley Bank (SVB) and New York’s Signature Bank. A crisis of confidence also hit Credit Suisse, which resulted in a state-led rescue by its Swiss rival UBS Group. 

“We already saw SVB, we already saw Credit Suisse, I’m concerned that there may be further financial accidents in the future. I think what high levels of interest rates do is they make the floor more slippery for banks and so they make accidents, or slips, more likely to happen,” Mr. Remolona added. — Keisha B. Ta-asan