Rice price ceilings ineffective – analysts
PRICE ceilings were of little help in controlling rice prices with headline inflation having risen to 6.1 percent last month from 5.3 percent in August, analysts said on Thursday.
“We had expected rice inflation to be modest given the price caps … however, it appears that price caps were largely ineffective in keeping a cap on the all-important rice price,” ING Manila Bank senior economist Nicholas Antonio Mapa said.
September’s inflation result — at the high end of the Bangko Sentral ng Pilipinas’ (BSP) forecast — was primarily due to higher food inflation (10.0 percent from August’s 8.3 percent) which, in turn, attributed to a surge in rice inflation to 17.9 percent from 8.7 percent.
As market prices of rice rose in reaction to an Indian ban on rice exports, President Ferdinand Marcos Jr. issued Executive Order (EO) 39 at the end of August. It capped prices at P41 per kilo for regular milled rice and P45/kilo for the well-milled variety.
Prices in Metro Manila markets prior to the issuance of the order were said to be P42 to P55 for regular milled rice and P48 to P56 for well-milled rice.
Analysts warned that the price caps could stoke inflation if implemented for too long — farmers and retailers would not want to sell at a loss — and Marcos subsequently lifted the cap on Wednesday.
China Banking Corp. chief economist Domini Velasquez said the surge in rice inflation “caught us off guard given the price cap and news that retailers were abiding with the said cap.”
“[The] PSA (Philippine Statistics Authority) mentioned that by the second half of September, rice prices were already trending down due to the cap. Hence, it seemed to be effective but with a lagged effect,” she added.
“With the lifting of the cap though, we will see the true market price of rice. Hopefully, it should be near the rice caps previously implemented given harvest season, rising inventories and decelerating prices globally.”
Mapa said the BSP would likely be prompted to act, noting that monetary authorities had already flagged a possible rate hike in November.
“BSP Governor Remolona [Jr.] has waxed hawkish of late, sounding off on further tightening while hinting at the possibility of an off-cycle rate increase,” Mapa said.
“We expect the BSP to be monitoring the actions of the Fed (US Federal Reserve) very closely with a potential off-cycle rate hike carried out but only if the Fed hikes in early November,” he added.
Monetary authorities have paused from hiking key interest rates for the last four policy meetings after inflation began slowing from January’s 14-year high of 8.7 percent.
Rate hikes totaling 425 basis points were ordered beginning May last year as inflation surged in the wake of Russia’s invasion of Ukraine.
Analysts and Cabinet officials had recommended that the government lower tariffs on rice imports in lieu of the price caps but Marcos thumbed this down last week.
Yesterday, Socioeconomic Planning Secretary Arsenio Balisacan said they were now recommending that reduced most favored nation (MFN) tariff rates on rice remain in effect up to the end of next year.
EO 10, issued by Marcos last December, extended reduced tariff rates on rice, corn, coal and pork, which were to expire at the end of 2022 to Dec. 31, 2023 (for rice, corn and pork) and beyond that for coal.
Balisacan said the Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO) — created by Marcos in May this year — had decided to make the recommendation on Tuesday.
“To address the increasing price of rice and ensure enough supply through timely and adequate importation, the IAC-IMO recommends extending the lower MFN tariff rate on rice until December 2024, but subject to review in July 2024,” Balisacan said.
“This policy response must be complemented by efforts to improve the predictability and transparency of issuing the Sanitary and Phytosanitary Import Clearance for rice and all commodities,” he added.
Balisacan said the government was “closely monitoring both local and global markets in terms of [rice] price movement, as they may be affected by the availability of supply or disruptions in the supply chain.”
If the global rice prices keep increasing due to El Niño and export bans from major rice-exporting nations, Balisacan said that the suggestion to reduce tariffs on rice from any source might be reconsidered.
“As we implement short-term measures to ease the negative effects of inflation, it is imperative that we also address our long-term food supply issues by providing support for our local farmers to boost their productivity and resilience,” he added.
“These include investing in irrigation, modern high-yielding varieties, pest control and logistics.”
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