Asean-5 to be hit by rising rice prices, the Philippines to be worst hit: OCBC
Navene Elangovan
THE sharp rise in rice prices will affect the Asean-5 economies, with the “most obvious” impact to be on the Philippines, said OCBC Bank senior economist Lavanya Venkateswaran in a research note on Wednesday (Sep 6).
The other Asean-5 economies that will be the most affected by the recent rise in prices are – in order of descending impact – Indonesia, Malaysia, Singapore and Thailand. The order is based on their net rice importer and exporter status, as well as the direct weight of rice in their respective Consumer Price Index (CPI) baskets, said the economist.
With the countries already dealing with “sticky inflation” over the past year, rising rice prices will be “a thorn in the inflation picture for the Asean-5 economies”, she added.
The price of rice has been going up lately for various reasons. India, for instance, banned non-Basmati rice exports in July this year. Lower rainfall, the result of the El Nino weather pattern, has also shrunk rice production.
In the research note, Venkateswaran predicted that the Philippines would be hardest-hit by rice prices. This comes from its having the largest rice-trade deficit in US dollar terms among its regional peers; it net-imported the most rice in 2021.
“Higher import costs will exacerbate already-elevated inflationary pressures,” she said.
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Another factor is that rice accounts for a large 8.9 per cent of the Philippines’ CPI basket, and will push up inflationary pressures, she added.
She said she expected Indonesia and Malaysia to see “some impact” from the higher prices.
Indonesia is “vulnerable” to shocks in the global rice market because it is a net rice importer. And rice is weighted at an estimated 4.3 per cent of Indonesia’s CPI basket, she noted.
Malaysia’s net rice importer status also makes it vulnerable to worse terms of trade in the rice market. However, Venkateswaran noted that the weight of rice in the country’s CPI basket is lower, at 1.1 per cent.
She said Singapore is vulnerable to worsening terms of trade as well, because it imports most of its food – even though the weight of rice in Singapore’s CPI basket stands at 0.2 per cent, the lowest among its regional peers.
Nevertheless, the large trade and current-account surplus will provide a solid external buffer for Singapore, said the economist.
Thailand, as a net exporter of rice, is buffered to some extent from global rice supply shocks, but Venkateswaran said that rising rice prices would still make an impact on domestic inflation.
“Retail rice prices have risen in recent weeks, and with rice accounting for 4.1 per cent of the CPI basket, higher domestic prices will have a noticeable impact on headline inflation.”
Lingering inflationary pressure from higher rice prices will preclude central banks from being more supportive of economic growth in the near-term, she added.
OCBC expects Bangko Sentral ng Pilipinas (BSP), the Philippines’ central bank, to push out rate cuts in the fourth quarter of this year, but Venkateswaran suggested that the BSP could do so in the first quarter of next year instead.
She also expects the Bank of Thailand to deliver further rate hikes.
Bank Indonesia, meanwhile, is expected to remain “vigilant of inflationary and external pressures in the near term” before looking to support growth in December 2023. “The risk, similar to BSP, is that Bank Indonesia pushes out rate cuts in 2024,” she added.
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