December 7th, 2021
The slowing down of inflation to 4.2% in November from 4.6% is positive news for growth and economic recovery. Typically, high inflation tends to slow down job growth, which in turn, reduces overall productivity. It also comes at a welcome time, since incomes are beginning to recover with the reopening of the economy. Low inflation induces more aggregate spending, which is also welcome news during the holiday season.
At the regional level, I also welcome news about the significant slowdown in inflation in key regions with high prices last month. The biggest slowdowns were in Bicol and Cagayan Valley. In Bicol, inflation slowed down by 1.5 percentage points, from 6.6 percent to 5.1 percent.
You will recall that, last month, we emphasized the importance of rationalized travel and transport restrictions on overall price levels. There is only one land route to Bicol, so excessive border controls constricted price levels, especially for food. When travel requirements were lowered to just the presentation of the vaccine certificate, instead of requiring tests, the flow of goods also went smoother and logistics costs and delays were reduced.
On meat
Meat prices remain elevated, as inflation for the good remains at 10.7%. This will be exacerbated by corn inflation, at 15.2%. In February this year, I have a speech entitled “Feeds, Feeds, Feeds,” which simplified the problem of the livestock sector to the scarcity of cheap and safe feeds.
I have expressed to Secretary William Dar my support for an additional budget to the Corn Development Program of the Department of Agriculture. We will need to prepare the local corn sector for eventually lower tariffs, but we cannot do so without added proactive support to the domestic sector.
I also support a fertilizer subsidy for small farmers. The largest consumer of inorganic fertilizers in the country are the rice and corn sectors, which are also inputs to the livestock industry. Fertilizer prices have more than doubled this year, due to growing scarcity of phosphate, most of which is produced in only a handful of countries.
I told Secretary Dar that substitution from inorganic to organic, home-grown fertilizers, as well as efficient land use and cropping practices, will be crucial to the future of agriculture in the country. In Albay, we are already training thousands of farmers in the production of organic fertilizers, to reduce dependence on inorganic, imported fertilizers. I also see this global trend in fertilizer prices as the biggest external threat to our food supply.
Outlook
Inflation is likely to slow down further in December, but to a lesser degree than the deceleration this month, due to a spike in consumer demand. Supply chain management and logistics – and the rules that govern them – will be key to this development. By loosening transport restrictions further, together with the aggressive national vaccination drives, inflation slowdown should continue to January 2022.
The threats to agriculture and food supply, however, will be key factors in overall prices next year. If fertilizer and corn prices continue to increase next year, expect meat inflation and overall food prices to remain elevated.