El Nino, weak peso to raise food prices

by Cai U. Ordinario, BusinessMirror

Posted at May 07 2014 09:18 AM | Updated as of May 07 2014 05:18 PM

MANILA, Philippines - The prolonged dry spell caused by El Niño and the depreciation of the peso are among the factors that could increase commodity prices, particularly food costs, this year, according to the National Economic and Development Authority (Neda).

Socioeconomic Planning Secretary and Neda Director General Arsenio M. Balisacan said higher food prices could push up inflation to an average of around 4 percent in 2014. While this is within the central bank’s 3-percent to 5-percent target, this is higher than the 3-percent average inflation in 2013 and 3.2 percent in 2012.

Balisacan said the potential increases in food prices may also emanate from the pending petitions for further adjustments in utility rates, transport fares and wages.

“In the short term, the interventions can focus on improving the management of inventory, including that of imports, and the efficiency of the distribution systems. In the medium term, we need to focus on increasing the productivity of agriculture and the food-processing industries, as well as expanding production capacity,” Balisacan said.

In the first four months of 2014, the Philippine Statistics Authority (PSA) reported that higher food prices drove inflation up to 4.1 percent in April, from 3.9 percent in March. In April last year the inflation rate was 2.6 percent. The increases were largely due to higher food prices.

The PSA noted that excluding selected food and energy items, year-on-year changes in core inflation were recorded 2.9 percent in April and 2.8 percent in March.

“This was mainly brought about by the upward price adjustments in the heavily weighted food items, particularly rice, meat, fruits, spices, milk and cheese. Also contributing to the uptrend were higher charges in electricity rates and increased prices of some meals eaten outside the home, selected items for personal care and effects, clothing and footwear items,” the PSA said.

The PSA data showed that the heavily weighted food and non-alcoholic beverages index increased to 6.2 percent in April and 5.8 percent in March. The food alone index, on the other hand, posted a growth of 6.5 percent in April, higher than the 6 percent posted in March.

Data also showed that except in fruit and vegetable indices, all the food groups had higher annual growths. The annual increase in the fruit index remained at 5.8 percent, while that for the vegetable index further slowed down to 8.2 percent and 8.7 percent.

In the National Capital Region (NCR), inflation was at 3.3 percent in April, it was 2.9 percent the month before. In Areas Outside NCR (AONCR), year-on-year annual inflation inched up to 4.3 percent in April, slightly higher than the 4.2 percent recorded in March.

“Tightness in the country’s rice supply persisted last month, resulting in higher prices of rice during the period. Similarly, the relatively higher corn prices may be attributed to lower production of corn resulting from dry spells in a number of corn-producing regions,” Balisacan said.

The food alone index in the NCR went up to 5.7 percent in April and 5.6 percent in March. The rice index still had a double-digit annual markup of 13.5 percent in April, but lower than the 16.3-percent growth last month.

Further, data showed that a double-digit annual hike was noted in other food products at 10.5 percent in April and 5.4 percent in March.

In AONCR the annual growth in the food alone index jumped to 6.6 percent in April and 6.1 percent in March. The PSA noted that the rice index climbed to 12 percent in April and 11.2 percent in March.

Except in the Cagayan Valley and Davao, all the regions had higher annual upticks with the biggest jump of 2.1 percentage points recorded in Central Luzon (14.3 percent and 12.2 percent). The PSA also said 12 regions registered double-digit rates.

Balisacan added that in both the NCR and the AONCR, rising crude prices in the world market pushed up the prices of domestic petroleum products.

He also said that in Metro Manila, the generation charge of Manila Electric Co. increased by 9.5 percent in April 2014, or by P0.51 per kilowatt-hour year on year, from only 0.4 percent in March 2014.

“The domestic prices of unleaded gasoline, diesel, kerosene and LPG [liquefied petroleum gas] recorded faster adjustments last month. These are also consistent with the Dubai crude price, which increased by 3.0 percent in April 2014, coming from a 1.2-percent annual contraction in the previous month,” Balisacan said.

“This was due to higher power costs from suppliers resulting from the several outages in large power plants, coupled with the increase in demand caused by the summer season,” he added.

The country’s inflation figure is computed using the Consumer Price Index (CPI). It is an indicator of the change in the average prices of a fixed basket of goods and services commonly purchased by households relative to a base year.

Using the CPI, the PSA computes for the country’s headline inflation and core inflation. Headline inflation captures the changes in the cost of living based on the movements of the prices of items in the basket of commodities and services consumed by the typical Filipino household.

Core inflation, on the other hand, measures the change in average consumer prices after excluding from the CPI certain items with volatile price movements. By stripping out the volatile components of the CPI, core inflation allows us to see the broad underlying trend in consumer prices.

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