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Inflation and the supply chain

The Department of Finance is recommending government to reform the supply chain for food to keep prices within affordable levels in 2022 and avoid calls for wage increases that may cause supply-side pressure and capital flight.

“The food price inflation is an important socio-economic issue as food accounts for much of the budget of poorer households. As food price inflation persists, calls for wage increases mount, which if realized could fuel further supply-side inflation and in turn, discourage investments,” said Finance Undersecretary and chief economist Gil Beltran in an economic bulletin.

Based on DOF computation, inflation averaged 2.66 percent from 2013 to 2020, as food prices went up by 3.33 percent during the period. In a period of eight years, food and beverage contributed 1.3 percentage points to inflation, with food accounting for 1.21 percentage points. As of October, food and beverage have accounted for about half or 2.23 percentage points of the 4.5 percent average inflation.

Beltran said rice used to be the largest source of inflation risk before the government converted the import quotas into tariffs through the passage of the Rice Trade Liberalization law. “Rice price has since stabilized and partly dampened the effects of the most recent sources of inflation rate spikes – fish, meat and vegetables – owing to supply disruptions caused by weather disturbances and diseases,” the finance official added.

Moving forward, it is recommended that government overhaul the food supply chain to steady both prices and supply. The DOF is pushing for legislation to improve the warehousing and food storage industry.

“The Warehouse Receipts Bill, which has been passed by the House of Representatives and subsequently submitted to the Senate, will help professionalize the warehousing sector and contribute to food security,” Beltran noted.

A stronger supply chain, especially when it comes to essential goods like food, will certainly benefit Filipinos by improving food security in terms of storage and distribution. Economists like lower inflation as an indicator of a well-managed economy while Juan dela Cruz will appreciate his government’s efforts to keep the cost of living in the Philippines as manageable as possible.*

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