Food inflation in Asean+3 seen to peak by year-end

Food price inflation in the Association of Southeast Asian Nations (ASEAN) Plus 3 is expected to peak at the end of the year, according to the ASEAN+3 Macroeconomic Research Office (AMRO.

“As the impact of global food price shocks is transmitted to the region with a lag, our analysis suggests that, all else the same. We can expect the peak effects of the region’s food price inflation and headline inflation towards end of this year,” AMRO said in its analytical note.

It said global food prices are expected to remain above 2020-2021 levels, even as prices of some agricultural commodities have eased, given supply disruptions and uncertainties due to the ongoing conflict between Russia and Ukraine, as well as the risks from unfavorable weather and livestock diseases.

AMRO said it would take time for strains in global supply chains to fully unwind, and production shortages and high transport costs will remain and continue to exert some price pressure on countries particularly those reliant on food imports.

It said the Philippines, which is among the economies with a higher dependence on food imports, is more vulnerable to global food price shocks.

Data from the Philippine Statistics Authority showed the country’s headline inflation eased slightly to 6.3 percent in August from 6.4 percent in July, due to slower increases in transport and food prices.

The August inflation rate, however, was still faster than the 4.4 percent in the same month last year.

Average inflation for the January to August period is at 4.9 percent, above the two to four percent target range of the Bangko Sentral ng Pilipinas (BSP).

The BSP has delivered rate hikes to rein in inflation. Last month, it raised the benchmark rate by 50 basis points to 3.75 percent.

AMRO said the key challenge for policymakers is to maintain a monetary policy framework that helps keep inflation expectations well anchored amid food price shocks.

On the fiscal side, it said policymakers have to deal with protecting household incomes and maintaining social stability without endangering fiscal sustainability.

“In the short term, efforts should focus on avoiding hoarding behavior and providing targeted support to needy households, such as temporary cash transfers or subsidies to keep prices from rising too fast,” AMRO said.

Over the longer term, it said governments could focus on enhancing social assistance schemes and increasing the food supply by providing support to boost domestic production and improve distribution.