Skipped Meals Show Pain as Philippine Rate Rise Nears: EconomyKarl Lester M. Yap
Rhea Buan’s mother asked her family to skip meals after an almost 20 percent increase in rice prices in the past year made the staple food almost unaffordable.
“Now she tells us: ‘Don’t eat breakfast anymore, let’s just have lunch’,” said Buan, 28, who runs a stall selling lighters, needles and glue in Iloilo city, about 300 miles south of Manila. Her family now consumes three kilograms of rice a day from five previously, she said.
Buan’s angst is contributing to popular discontent with an inflation rate in the Southeast Asian nation that’s more than doubled in less than a year, to 4.4 percent. While it won’t immediately put more food on the table for Buan, Bangko Sentral ng Pilipinas is forecast tomorrow to raise its benchmark interest rate for the first time in three years.
“Now is the time to pull the trigger,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila. “Rising prices pose a real threat to the economy, and people are feeling the pinch. By raising rates, BSP will send a timely and strong signal that they are doing what is necessary to keep inflation expectations well-anchored.”
Fourteen of 19 economists forecast the central bank will raise its benchmark rate by a quarter of a percentage point to 3.75 percent, with the rest predicting no change. The monetary authority has increased the reserve requirement ratio twice this year and the special deposit account rate once.
Higher rates may hurt demand in an economy which expanded 5.7 percent in the three months through March from a year earlier, slipping below 6 percent for the first time in nine quarters. Bangko Sentral last month raised its inflation forecasts for 2014 and 2015, citing risks from the El Nino weather effect, higher food prices and potential increases in power tariffs.
President Benigno Aquino has asked state agencies to fast-track efforts to curb prices, with authorities arresting suspected rice hoarders earlier this month. The government last week approved a plan to import an additional 500,000 metric tons of rice, and prices of some items such as garlic and oil have eased in recent weeks.
Food prices surged 7.4 percent in June from a year earlier, the fastest pace since 2009, boosted by rice. Food and non-alcoholic beverages have a weightage of about 40 percent in the consumer-price index basket, among the highest in the region.
Philippine seven-year borrowing costs rose to the highest level since January 2013 in an auction last week. Treasurer Rosalia de Leon attributed the increase to investors expecting a policy rate hike. The peso fell 0.2 percent to 43.41 against the dollar as of 10:52 a.m. in Manila today, according to Tullett Prebon Plc.
Asian policy makers have been stepping up efforts to curb rising prices, with Malaysia this month raising its key interest rate for the first time in more than three years. India in June pledged to offload 5 million tons of rice at subsidized rates to stabilize prices.
The Philippine central bank has kept the benchmark overnight rate at a record-low 3.5 percent since October 2012. In separate surveys, 10 of 12 economists predict the central bank will raise the SDA rate, with the rest forecasting no change. All 11 analysts surveyed expect no change in the reserve requirement ratio.
“A policy rate hike won’t solve the food inflation problem as it’s mostly driven by supply concern rather than demand,” said Eugenia Fabon Victorino, an economist at Australia and New Zealand Banking Group Ltd. in Singapore. “Inflation expectations are still within the BSP’s target for this year and next.”
The central bank targets price gains to average 3 percent to 5 percent this year and 2 percent to 4 percent next year.
Crops destroyed by Typhoon Rammasun this month and a transport fare increase in June add to price threats in a nation where the World Bank estimates 42 percent of the population lives on less than $2 a day.
“The government should do something about the prices,” said Buan, whose 18-member family lives together. The food costs are prompting Filipinos to cut spending on other items, too.
“High food prices nowadays eat up my salary, leaving us almost nothing for recreation like movies and occasional trips to the malls,” said Amelia dela Cruz, breadwinner of a family of five in Bulacan province near Manila. “I don’t know when this difficulty will end, but I wish it is soon.”