Consumer should brace themselves for further acceleration in prices as the Philippines continues to face inflationary pressures from both food and non-food items, the Department of Finance (DOF) said.
Finance Chief Economist Gil S. Beltran said effects of the African swine fever (ASF) continues to threaten food security and is further complicated by the ongoing geopolitical tension in Easter Europe that has implications on both food and energy security.
To help alleviate the effects of the ASF on food prices, Beltran said the country needs to repopulate decimated hog populations and momentarily supplement any shortfall with meat imports.
However, Beltran noted that for non-food price inflation, there is not much the Philippines can do because of its dependence on oil imports.
“In the short-term, non-food price inflation will continue to be driven by developments in the global energy market,” Beltran said.
Dubai crude oil averaged $93.13 per barrel in February, up by 12 percent from January, and was the highest since October 2014.
The futures market for oil was in “backwardation”—the spot price is higher than near-term futures contracts which are, in turn, higher than longer-term contracts—suggesting tight supply conditions and higher convenience yield associated with having on hand the physical commodity.
“This backwardation also suggests that market players expect oil prices to eventually stabilize as oil-producing countries turn on the taps. Note, however, that the oil futures market has been in backwardation since last year,” Beltran said.
Higher energy prices in the world market ultimately get translated into higher local pump prices, Beltran said. However, it would be a policy mistake to suspend fuel excise taxes as this would mean “subsidizing the rich,” the owners of gas guzzlers and airconditioned houses.
“As previously stated, the more equitable and transparent, hence appropriate, means to cushion the impact of higher pump prices is through targeted support to vulnerable groups,” he said.
Last week, Finance Secretary Carlos G. Dominguez III said the government would need to borrow additional money from creditors should taxes on petroleum products are suspended.
Dominguez said suspending fuel excise taxes will only provide temporary and minimal relief to consumers, but entails detrimental impact on government’s fiscal position.
Dominguez noted that suspending oil levies would bring down prices of goods by only 0.03 percentage points in 2022, but it will hamper the economic recovery and result in slower growth by 0.4 percentage point (pp) in the short run and 0.03 pp in the long haul.