Commentary: Buckle up for higher inflation in August

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Analysis and Recommendation

It started in India

On July 20, India imposed an export ban on non-Basmati white rice to ensure domestic supply and keep prices low ahead of a key election year. For context: India is the world’s top rice exporter, accounting for around 21.5-Million MT or 36.8% of global rice exports. Thailand is a distant second, accounting for 8.2-Million MT or 13.5%, and Vietnam is third with 6.8-Mn metric tons or 8.6%.

Export prices of Thai and Vietnamese rice immediately jumped following India’s export ban, and Vietnam has scrambled to cover the shortage, pledging to increase exports by 10% to 7.8-Million MT this year. However, Thailand has urged farmers to reduce rice planting to save water following a season of low rainfall and as rice-growing regions in the north and east of the country experience drought or near-drought conditions.

Rice prices jump 10% last week

Prices have already jumped by at least 10% in Philippine marketplaces over the past week, with premium rice prices going up from P54-56 per kilo to P60-62 per kilo. While the Philippines sources less than 5% of its rice from India, Vietnamese and Thai rice accounts for more than 90% of total imports.

Domestic production is simply not enough to cover demand, with the US Department of Agriculture (USDA) forecasting local demand to reach 16.5-Million MT against local production of 12.6-Million MT. In fact, the Philippines ranked as the third top rice importer in 2022, behind only China and the United States.

Buckle up for higher inflation in August

With 80% of Filipinos consuming rice on a daily basis, rice has an outsized weighting on the already overweight “Food and non-alcoholic beverage” commodity group used in computing inflation. July data showed that rice prices have increased by 4.2% from the previous year, causing the cereal and cereal products sub-group, which includes rice, to contribute 2.0% to headline inflation.

If local prices would eventually mirror the export prices on the world market, that would translate to nearly 30% YoY increase, which would snap inflation’s 7-month downtrend and likely send headline inflation back above 7.0%.

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