HSBC warns inflation rate to spike in 2024 as old EO on pork, corn tariff expires

Metro Manila (CNN Philippines, September 12) — The inflation headache from rising food prices will likely persist up until early next year as an old Malacañang directive that cut tariffs on imported pork, corn and rice expires by yearend, an economist from HSBC said on Tuesday.

The levy on these commodities has been reduced and pegged to so-called “Most Favored Nation” tariff rates since 2021, but was then extended at least twice – the latest being through Executive Order (EO) No. 10.

Imported rice was also included in that existing EO but the Department of Finance signaled over the weekend that a new EO further bringing the tariff on the grain to zero will be forthcoming as soon as Congress adjourns end-September.

That leaves the other commodities potentially returning to their old rates by 2024.

Speaking before an annual conference conducted by the Management Association of the Philippines (MAP), HSBC economist for ASEAN Aris Dacanay said Philippine inflation could rise by 1.4 percentage points next year when the Malacañang directive lapses.

“We do expect headline inflation to go up in the Philippines in February 2024 because there’s one executive order that we need to monitor and that’s the executive order that lowered the tariff rates for rice, coal, corn and pork,” said Dacanay.

The British banking giant forecasts inflation to cap 2023 at an average 5.7%, way above the central bank’s target and almost matching 2022’s 5.8%. It expects 2024 inflation to settle at 3.6%.

“So for 2024, we do expect that the Philippine inflation narrative will still continue, and that will keep the BSP (Bangko Sentral ng Pilipinas) on its toes and will likely keep interest rates high,” Dacanay said.

HSBC’s growth outlook for this year looks dim at 4.8%, a significant slowdown from 2022’s 7.6% and if realized, would be the slowest pace since the pandemic-times recession.

However, Dacanay said a cooling economy and domestic consumption would be warranted, especially as they are funded by borrowings. The country is running a hefty current account deficit, and the slowdown could help bring the balance back to the domestic economy, HSBC said.

The bank put its 2024 growth forecast at 5.2%.