* This is my second article in Asia Times last September 18, 2018.
See also: Asia Times 1, The fast rising price of ‘Dutertenomics’, September 12, 2018
Philippine inflation, already galloping beyond the
government’s control at 6.4% in August, is set to accelerate even faster after
the damage wrought to crucial agricultural crops by Typhoon Mangkhut.
The super storm, known locally as Ompong, killed at least
66 people and caused heavy damage to crops and infrastructure in the country’s
northernmost crop-growing heartland, namely the Ilocos, Cagayan and Cordilleras
areas.
Cagayan province has already been put under a state of
calamity, with its Governor Manuel Mamba say crops in the area have been
entirely destroyed.
The Department of Agriculture has initially estimated
agricultural losses at around 12 billion pesos (US$222 million). The nation
lost an estimated 250,730 tons of paddy rice due to Mangkhut’s heavy rains,
strong winds and massive flooding, exceeding the department’s worst-case
forecast by some 60%.
That will put even more pressure on the government to
boost rice imports and add to price pressures that recently drove inflation to
a decade high. Even before the storm government planners aimed to import an
additional 383,500 tons of rice, on top of approved purchases earlier this year
of more than one million tons.
The Philippines is already one of the world’s biggest
rice importers and its rising demand is already raising the price of the grain
in Vietnam, its main foreign supplier.
An aerial photo shows devastated rice and corn fields inundated by
floods from a swollen river after heavy rains during Super Typhoon Mangkhut in
Alcala, Cagayan province on September 16, 2018. Photo: AFP/Ted Aljibe
In the last two years, agriculture and forestry generated
275 billion pesos of gross domestic product (GDP) in the third quarter of 2016
and 294 billion pesos in the same period in 2017. Projected GDP for this year’s
third quarter for the sector was about 310 billion pesos before the storm.
The 12 billion peso loss thus equates to about 3.9% of the
quarter’s projected 310 billion in agriculture and forestry earnings. Northern
provinces had already suffered big agriculture and fishery losses from two
monsoon rains that lasted between one to two weeks in July and August.
A recent big jump in Philippine inflation, 5.7% year on
year (yoy) in July and 6.4% yoy in August, was driven by price rises seen in
August in vegetables (19.2%), corn (12.6%), fish (12.4%) and non-alcoholic
beverages (11.5%). The adverse effects of August monsoon rains are reflected in
the statistics.
Typhoon Mangkhut affected precisely the provinces that
produce mostly vegetables (Cordillera), corn (Cagayan) and fish
(Pangasinan/Ilocos).
If the degree of crop failure and consequent price hikes
for these products in August is repeated or exceeded in September, then
inflation could hit over 7.0% for the month. The Philippines already had the
highest inflation in the region in August at 6.4%, far outpacing the next
fastest rates in Vietnam at 4% and Indonesia at 3.2%.
If inflation hits 7% in September, then year to date
(January to September 2018) inflation will rise to 5.0%, much higher than the
government’s original target band of between 2-4% for full year inflation. That
would be dangerous for consumers and politically damaging to President Rodrigo
Duterte’s administration.
Even before Mangkhut there were several inflationary
risks on the horizon, including fare hike petitions from buses, taxis, vans and
other public transport operators that have not yet hit headline inflation. A
soon-to-be-implemented airplane fuel surcharge will also add to inflationary
pressures.
So, too, will the continued depreciation of the
Philippine peso, which averaged around 51 to the US dollar in 2017 and is
currently trading at over 54 to the greenback. The cost of imported oil, food
and other consumer items will thus further rise year on year.
Next phase oil, liquefied petroleum gas and coal tax
hikes set for January 2019 will also add to the inflationary mix.
An overturned tricycle is seen next
to a destroyed house after Super Typhoon Mangkhut hit the town of Alcala,
Cagayan province on September 15, 2018. Photo: AFP/Ted Aljibe
As Mangkhut caused damages threaten to push food prices
higher, Duterte is left with limited policy options. His administrations
limited trade liberalization measures on rice and fish imports have so far had
little if any deflationary impact.
Interest rate hikes by the central bank, aimed at
discouraging consumer spending, fail to take into account that the poor have so
far taken the brunt of higher prices on staples like rice and will inevitably
slow growth and job creation.
A new program to give away free rice and vegetable seeds
to farmers is a stop-gap measure, at best, that would anyway take months to
have a deflationary impact if effectively scaled.
And there is no guarantee those new crops won’t be washed
away the next time a major storm hits the Philippines, one of the most
typhoon-prone countries in the world with an average of 20 major,
damage-causing storms recorded each year.
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See also: Asia Times 1, The fast rising price of ‘Dutertenomics’, September 12, 2018
