Supply constraints and higher utility rates drive inflation to 8.7% in January 2023

The Marcos administration has intensified its measures to improve local production and agricultural productivity as inflation reached 8.7 percent in January 2023 due to supply constraints and higher utility rates.

Core inflation, which excludes selected volatile food and energy items, went up to 7.4 percent in January 2023 from 6.9 percent in the previous month and 1.8 percent in the same period in 2021, depicting underlying demand-side price pressures.

Food and electricity, gas, and other fuels were the highest contributors to January 2023 inflation. Main contributors to increased food inflation are vegetables at 1.06 percentage point (ppt); meat, fish, and sugar each at 0.4 ppt; as well as dairy products and eggs at 0.3 ppt.

Meanwhile, electricity rates increased for the third straight month in January due to higher generation charges and impacts of the completion of a distribution-related refund, while housing rentals rose due to higher contract renewal rates and strong economic recovery.

Measures to address inflation

“The thrust to improve productivity in the agriculture sector and ensure energy security will help stabilize inflation moving forward,” said Finance Secretary Benjamin Diokno.

The government is adopting a whole-of-government approach and is continuing the distribution of organic and bio-N fertilizers, quality seeds, seedlings, farm production and post-harvest machinery and equipment.

Financial assistance has also been extended through credit and direct cash aid to help reduce the input cost of production and increase the production of farmers.

As an intermediate measure, the government enacted Executive Order (EO) 10, which extended the temporarily reduced Most Favored Nation (MFN) tariff rates of meat of swine (fresh, chilled, or frozen), maize (corn), and rice until December 31, 2023, and coal beyond 2023, provided that there will be a semestral review of the reduced tariff rates after the aforementioned period.

With the recent adoption of the Philippine Development Plan (PDP) 2023-2028, the government will begin enforcing medium- and long-term plans to increase productivity and modernize the agriculture sector.

This year, the Development Budget Coordination Committee (DBCC) assumes an inflation rate of 2.5 to 4.5 percent as it is expected to moderate within target range in the last quarter of 2023 as government measures take effect.