HOW STRONG IS THE RELATIONSHIP BETWEEN RETAIL PRICE OF RICE AND HEADLINE INFLATION?

WITH RICE accounting for almost 10% of the theoretical basket of goods widely used by the typical Filipino household, it is not surprising to see its heavy contribution to inflation. Rice contribution to the September and October nine-year inflation peaks of 6.7% were calculated to be 1.03 percentage point and 1.06 percentage point, respectively. The staple’s sizeable contribution is reflective in the retail price movements of well-milled and regular-milled rice. For instance, the retail price of well-milled rice accelerated in 2018, peaking at P48.97 per kilogram in September before easing to P44.63 per kilogram in January 2019. The same trend is seen in the price of regular milled rice. Furthermore, data in the last five years show that there is a strong positive correlation between the retail price changes in rice and headline inflation. The correlation coefficient between the price changes in well-milled rice and inflation is 0.69 while that of regular-milled rice and inflation is 0.81. (Note that a correlation coefficient of 1 denotes perfect positive correlation.)