Taal eruption to raise inflation rate
Credit to Author: Mayvelin U. Caraballo, TMT| Date: Wed, 15 Jan 2020 16:22:04 +0000
THE eruption of Taal Volcano earlier this week could accelerate the country’s inflation to as high as 3 percent at the start of the year, according to a Philippine National Bank (PNB) economist.
In a report on Wednesday, PNB chief economist Jun Trinidad said the Tan-led lender sensed a macro downside risk from the effects of Sunday’s calamity and would take its toll on inflation, rather than on domestic demand that could undermine growth prospects.
“While income and food price shocks arising from ND [natural disaster] events do not last, given import channels and return to normal business/production in the affected regions, the recent ND effects bolster a 2020 inflation trajectory that is likely to break out of the 2- to 2.5-percent range and perch at 3 percent year-on-year, if not more, to kick-start 2020,” he said.
Trinidad’s projection is higher than 2019’s average inflation rate of 2.5 percent.
The eruption, he said, may put pressure on food prices of livestock, particularly chicken and hogs, as well as fish, noting that Region 4 (Cavite, Laguna, Batangas, Rizal and Quezon, or Calabarzon) is a significant contributor to local livestock output.
Citing Philippine Statistics Authority data, the economist said the region was the second largest producer of live chickens, having produced 87,000 metric tons (MT) of these out of a total of 428,800MT in the third quarter of 2019.
Calabarzon is also the second largest source of live hogs, accounting for 17 percent of total output of 551,600MT in the July-to-September period, he added.
Trinidad also said the consumer price index of fish printed inflation of 7.5 percent year-on-year last December as demand for pork substitutes persisted, which could have been prompted by consumers’ aversion to the African swine fever.
The disease first broke out in the country in the third quarter.
Despite this, the economist said high livestock food and fish prices might be eased by low rice prices.
“If [the] supply shortfall persists, the government may ease import constraints on these commodities while imposing regulatory price restraint measures in the affected areas,” he added.
Moreover, Trinidad stressed that NDs render the fiscal policy response as urgent and involved the immediate relief/aid for the affected communities, reconstruction and rehabilitation of damaged public infrastructure, and more regional infrastructure projects that heighten potential jobs and income creation to strengthen demand prospects.
“As we noted in past ND events, the downside impact(s) can be mitigated by size and speed of government’s relief and aid efforts, and reconstruction/infrastructure rehabilitation of school buildings, airports, public markets/medical facilities, government offices [and] road networks,” he said.
With this, he underscored that having the approved 2020 budget with a national disaster risk-reduction and management fund of P20 billion, and with proceeds from the government’s catastrophe-linked or CAT bonds, could provide initial funding to enable fiscal alleviation of recent losses from the disaster.
Earlier, Finance Secretary Carlos Dominguez 3rd assured the public the government can tap the country’s CAT bonds once it accounts the eruption’s full impact on the economy.