No jobs, asset bubble issues for PH yet — Diokno (Sabong News)

The Philippines’ response to high inflation would be different because it has no jobs-related or asset bubble issues as yet, or clear second-round effects that could trigger monetary policy actions to control price pressures, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno. With that scenario, Diokno said the BSP will still not mirror other countries, specifically US and Europe and other Asian nations, in their monetary policy adjustments and have decided to keep an accommodative stance for some time. “Clearly, the Philippine’s inflation challenges are more manageable than some advanced and emerging economies. The root causes of inflation are not necessarily the same,” he said over the weekend. “While the Philippines and other countries are all affected by higher energy and other commodity prices, some are affected more than others. But the Philippines does not face the labor tightness and the elevated asset prices that most developed countries are facing. Consequently, the Philippines’ response need not necessarily mimic the responses of other countries,” Diokno stressed. In a Viber message over the weekend, the BSP chief said that inflation expectations are still anchored to the two-four percent target for 2022, 2023 and 2024. The BSP last week raised its 2022 inflation forecast to 4.3 percent and 3.6 percent in 2023. The Monetary Board has not changed the policy stance since November 2020 and the key rate remains at a record low of two percent. “Since inflation pressures are coming from supply side factors, a monetary response in terms of policy rate adjustment is neither appropriate nor responsive. An increase in policy rate will not change the reality that energy and other commodities have surged owing to the Russia-Ukraine conflict,” said Diokno. “It is when there are clear second round effects on the demand side, say, for example, higher wages and higher transport fares, that the (BSP) may choose to act to mitigate inflation pressures,” he reiterated. The BSP has laid down several anti-inflation measures that it has recommended to the government for its “heavy lifting” since price pressures in this case are better addressed via non-monetary actions. Diokno highly encourage the government to continue to open the economy more to increase mobility and expand economic activity to increase aggregate supply for job creation that will lead to increase incomes. To reduce second-round effects, the BSP recommends more non-monetary measures such as: for gasoline and diesel, the government can increase fuel subsidy for public utility vehicles and continue promotional discount of oil companies; for coal, expand supply and reduce price by lowering the most favored nation (MFN) seven percent tariff rate to zero until December 2022 and maintain buffer stock at the current 30 days minimum inventory; and for electricity, stagger the increase in generation charge and encourage energy conservation in all government offices. Other BSP-recommended non-monetary actions are: overall support to agriculture by providing fuel vouchers to farmers and fishermen as well as the targeted fertilizer vouchers to farmers and to expand supply through bilateral discussion with fertilizer producing countries; on rice, the Department of Agriculture (DA) should monitor rice inflation and the National Food Authority should closely monitor buffer stock, accelerate the implementation of the Rice Competitiveness Enhancement Fund and other parts of the national rice production program to increase production; facilitate the release of Sanitary and Phytosanitary (SPS) import clearance especially for shipment arriving for the lean season starting July and expand supply and reduce price by extending the MFN 35 percent tariff until December 2022. Diokno said as for corn, the government should “expand supply and reduce price by lowering the MFN tariff to five percent in quota and 15 percent out quota with MAV of 4 million MT until December 2022 (and to) import more feed wheat and produce more cassava (as feed substitute).” For pork issues, the BSP recommends the following measures: expand pork supply and reduce price by extending the lower tariff of 15 percent in quota and 25 percent out quota with MAV of 200,000 MT until December 2022; accelerate release of imported pork from cold storage as well as the continued implementation of strict biosecurity measures; other partnership with private sector groups/hog breeders to speed up the repopulation program. “On fish, issue CNI for small pelagic fish valid from Q2 to Q4 (second quarter to four quarter) 2022. It needs an additional 140,000 to fill up the projected supply gap of 200,000 MT,” said Diokno. As for chicken, he said to “accelerate the release of SPS clearances from National Meat Inspection Service (NMIS) cold storage warehouses to push up inventory to pre-pandemic level”. The issuance of DA guidelines on the movement of poultry products and by-products following the detection of Avian influenza in some duck and quail farms to mitigate potential spread of the disease is also recommended. “On sugar, address the temporary restraining order (TRO) on sugar import and allow direct importation by industrial users,” said Diokno. The BSP prefers a 1:1 domestic to import ratio. “On wheat, expand sources of wheat, for example, India, and promote non-wheat flour substitutes such as the Sagip-nutri flour (made from cassava, sweet potato, mongo, and others) and banana flour,” he also said. Diokno said high inflation “is back with a vengeance.” But the Philippines’ inflation expectations are still intact. As of February, the rate is at three percent, still within the two-four percent target. The BSP has since revised its inflation forecasts in view of the Russia-Ukraine war which started on Feb. 24. “Inflation expectations remained anchored to the target. Based on the BSP’s survey of private sector economists, the respondents expect inflation to settle within the government’s target range in 2022, with risks to inflation outlook tilted to the upside. The results showed that the mean inflation forecast for full year 2022 would rise from 3.5 percent (February survey) to 3.8 percent (March survey),” said Diokno.