FREE Commentary: Lower rice prices could help tame inflation

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The Department of Agriculture (DA) expects the retail price of rice to fall to P45/kg from the current level of P47-55/kg with the arrival of more imported rice (covered by the lower tariff rate) in the coming months.

The pick up in rice imports (after the government cut the tariff rate) coupled with the steady local production of palay this year are expected to result in a P6-7/kg cut in local retail prices of rice, this as per the Philippine Statistics Authority (PSA). The country has imported some 2.3mn metric tons of rice already as of mid-2024 and the DA is targeting to import a total of 4.7mn metric tons this year.

Our View

Rice accounts for 8.9% of the local consumer price index (CPI) basket. Lower inflation leads to increased consumer spending, which then boosts overall market sentiment. Thus, the lowering of rice prices has a huge impact on inflation expectations and subsequently, rate policy outlook.

We expect inflation to start cooling off and hit the lower band of the BSP’s target range of 2%-4% starting this month. We forecast August inflation to slow down to 3.7% vs. July’s 4.4% to be driven by lower food and fuel prices. Our 2024 inflation forecast is at 3.1% for 2024 and 2.6% for 2025. And we expect the BSP to cut its rate by another 25bps (0.25%) before end-2024.

We reiterate our upgraded index target of 7,500 for the year backed by 12.4% earnings per share (EPS) growth.

Our top picks consist of quality names with cyclical recovery themes: SM, MBT, JFC, ALI, ICT, AP and MWC.

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