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Salceda on January inflation: Sure to go lower from February onwards, but “fish and eggs will be flavor of the year” for inflation; “8 percent is cyclical, but 5 percent is structural ”

February 7th, 2023

House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) says that “January’s inflation levels will surely go down by February” but that fish and egg prices will likely remain elevated throughout 2023 unless corn prices and supply improves.

“I am sure the overall price level on February and every month in 2023 will be lower than 8.7%. Vegetable prices – especially onion – will go lower, especially during this harvest season. But I expect fish prices, as well as egg and dairy prices, to remain elevated. Corn drives those prices, and corn prices – imported or domestic – are expensive.”

Corn prices have a year-on-year inflation rate of 16%, and has continued to accelerate month-on-month by 1%.

Salceda says “this will drive prices of fish, because corn accounts for 60-70% of costs in aquaculture. Every 1% increase in corn prices leads to a P2-5 price increase in tilapia prices.”

“Egg is exacerbated by problems in poultry supply and smuggling of frozen chicken, which kills domestic raisers. But egg supply issues are not isolated. Nearby areas like Guam are already experiencing shortages.”

“So, I would repeat my initial suggestion to look into corn tariffs and try to direct as much of it towards increasing production. Imported corn isn’t also cheaper than domestic corn once landed. In fact, in some cases, imported corn is 2 pesos more expensive than domestic corn. So, it should be okay to import.”

2-4% target might be difficult to achieve, 5% inflation “structural”

Salceda also said that the government’s 2-4% target inflation band might be difficult to achieve given that some price drivers are “structural.”

“You can be sure 8.7% will go down, but there’s a floor,” Salceda said.

“All in all, it looks like 8% is a cyclical level, but 5% is structural. So, that makes your 2-4% inflation target almost off the table, unless you make decisive efforts on the key drivers. High corn prices: that’s enemy number one.”

“The BSP will try to keep prices under control. Definitely another 50 basis point hike in interest rates during the February 16 Monetary Board meeting will be taken up, perhaps announced.”

“But inflation is not due to accelerated demand. It’s supply. Monetary policy adjustments will have limited effect in that regard.”

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