Farm modernization, more industry, services trade seen key to addressing inflation
By Keisha B. Ta-asan, Reporter
THE GOVERNMENT needs to modernize its farms or generate more trade from industry and services to offset a food import policy if it is to adequately address inflation, analysts said.
Leonardo A. Lanzona, an economics professor at the Ateneo De Manila, said the government needs to act decisively to bring inflation down to within the 2-4% target range.
“There are two ways of solving this. One is to enhance agriculture through a massive productivity program that applies mechanization and automation to fully modernize the sector,” Mr. Lanzona said.
“This should have been accomplished during the pandemic as the sector seems to be dependent on imported inputs. This will require substantial investment not just in infrastructure but also in research and development,” he added.
“The second is to import food… but to be sustainable we need to get more trade revenue from both industry and services,” Mr. Lanzona said.
“The trade in services seems to be the most promising of these options, but this will require substantial human capital investments, particularly in digital skills,” he added.
Headline inflation rose to 8.1% in December, bringing the full-year average to a 14-year high of 5.8%.
National Economic and Development Authority Secretary Arsenio M. Balisacan has said that the government will focus on modernizing agriculture and agribusiness via farm mechanization, research and development, and a focus on higher-value products.
He also said the government will prioritize the adoption of climate and disaster-resilient technologies with the development of early warning systems and anticipatory mechanisms to protect the agriculture and fishery sector.
Domini S. Velasquez, chief economist at China Banking Corp., also called for subsidies in key farm inputs.
“As the agriculture secretary, (President Ferdinand R. Marcos, Jr.) can help provide fertilizer and feed subsidies to those are affected by higher prices… Improvements in irrigation system will also help,” Ms. Velasquez said.
“As these initiatives take time, constant monitoring of food availability/shortages is needed; and acting early is important to prevent previous episodes of shortages,” she added.
In an open letter to Mr. Marcos dated Jan. 24, the Bangko Sentral ng Pilipinas (BSP) said it will adjust monetary policy as necessary in order to bring inflation back to the 2-4% target by the second half this year.
The Monetary Board increased benchmark rates by 350 basis points last year, bringing its policy rate to 5.5% to tame inflation.
The BSP issues open letters when it fails to achieve the inflation target.
According to the open letter, headline inflation started to rise in March as fuel prices increased amid concerns over tighter supply arising from the Russia-Ukraine war.
Global and local supply shocks also drove food prices higher. Overseas, higher energy prices led to knock-on increases in the cost of fertilizer, while in the Philippines, animal diseases and the impact of typhoons on production added to the supply constraints.
“The combined rise in food and energy prices eventually spilled over to the prices of other commodities and services, such as transportation and restaurant services. Broadening inflation pressures have also given rise to second-order effects, in the form of approved petitions for transportation fare adjustments and minimum wage increases as well as a sustained buildup in the inflation expectations of analysts and the broader public,” the BSP said.
The central bank also cited the impact of strong pent-up demand.
“The BSP will continue to adjust its monetary policy stance as necessary to keep further second-round effects at bay and to prevent inflation expectations from becoming disanchored,” the central bank said.
“Our approach to monetary action will remain data-dependent and contingent on the inflation outlook, along with other available macroeconomic information at a given point in time,” it added.
During its last policy meeting in December, the BSP projected inflation to average 4.5% this year before easing to 2.8% in 2024.
The statistics agency is due to release inflation data for January on Feb. 7, while the Monetary Board will convene on Feb. 16.