REIN Plan: Will this blueprint by the Philippine government be enough to contain inflation?

There is a good reason to remain wary of inflation.

Full-year inflation settled high at 6.0% in 2023, driven mainly by high commodity prices, especially rice. This year started with a low inflation rate of 2.8% in January, lower than the consensus estimate of 3.1%.

Meanwhile, February inflation accelerated higher than expected at 3.4%, versus the consensus estimate of 3.1%. The challenge is to ensure a continuous downward trend.

Department of Finance Secretary Ralph Recto is seizing the reins to bring down inflation numbers. The result is the Reduce Emerging Inflation Now (REIN) Plan, a blueprint aimed at stabilizing prices and inflation.

REIN identified the most important components of inflation and the measures needed to control them.

Manage food prices and ensure food security

A major hurdle that the government faced in 2024 is increasing prices of basic commodities. Under the REIN Plan, the DOF will fund the enhancement of agricultural production in anticipation of the effects of the El Niño phenomenon.

The El Niño Mitigation and Adaptation Plan will enhance the capacity of our water technologies such as irrigation systems and hydroelectric plants, alongside cloud seeding, which manually seeds clouds with salts to induce precipitation. Through these, the government will be able to rehabilitate vulnerable areas, protect affected communities, and manage drought.

To support food security, the government will also continue to support lower tariff rates for key agricultural commodities such as pork, corn, and rice through Executive Order No. 50. The extension of the reduced Most Favored Nation (MFN) tariff rates for key agricultural commodities will help ensure sufficient and affordable food supply for Filipinos until the end of 2024.

Strengthen foreign partnerships

The Philippines continues to forge partnerships with other economies to manage the rice crisis and alleviate the impacts of global supply chain disruptions and the El Niño phenomenon on inflation.

Early this year, the Philippines, led by President Ferdinand Marcos, Jr., signed a Rice Trade Cooperation deal with Vietnam which entails a five-year trade commitment to supply white rice to the Philippines, amounting to 1.5 million to 2 million metric tons (MT) per year at a competitive and affordable price.

This is apart from the country’s deal with India, signed in October 2023, that involves a significant importation of rice to the Philippines amounting to 295,000 metric tons, with 75,000 metric tons expected to have arrived by January 2024.

Furthermore, the Philippines is exploring cooperation with Cambodia on agreements to increase rice trade, especially in anticipation of the El Niño phenomenon.

Ensure fuel price stability

The government aims to reduce fuel inflation through the implementation of guidelines and provision of subsidies. To mitigate the effects of inflation on fuel prices, the government is committed to efficiently release fuel subsidies for public utility vehicle (PUV) operators and drivers.

Guidelines will soon be released by the government on the increase of ethanol blends in gasoline in order to reduce gas prices. These will work towards mitigating possible oil price increases from conflicts in the Middle East.

Inflation and benchmark rates

Because inflation continues to be elevated despite slowing down, the Bangko Sentral ng Pilipinas (BSP) is keeping the benchmark rates stable for a little while longer. With less money circulating in the financial system, this will help keep a lid on inflation.

The government’s inflation target is still at 2-4%, with the BSP adjusted inflation forecast for 2024 at 3.9%, which is at the upper bound of the target. We see the BSP cutting rates in the second half of 2024.

Until there is a clear sign of a sustained downtrend in inflation rates, and until we see the US Federal Reserve cutting its interest rates as well, we may finally see the rate cuts from the BSP that will redound to greater economic growth.

HANS NIGEL P. MARCELO is an intern at the Institutional Investors Coverage Division of Metrobank, taking on roles in relationship management and in research and business analytics. He is currently taking BS Business Management at the De La Salle University – Manila. As a student leader, he is driven to make a positive impact wherever he is.

MARIAN MONETTE FLORENDO is a Research and Business Analytics Officer of the Financial Markets Sector at Metrobank. She provides macroeconomic research for the bank. Her academic background is in Mathematics and Economics. She loves solving puzzles and watching mystery movies.