Price Hikes: A Major Threat

Staple food prices have been increasing since the previous year and the price of crude has reached a 31-month high last March. For some Asian countries, food inflation had already averaged about 10% as global food prices have increased by over 30% in early 2011.

• Threat to Asia. Soaring food and fuel prices threaten to send millions of Asians into poverty and deter the region’s economic growth. A 10% hike in domestic food prices could push 64.4 million people into poverty. If the price increases persist for the rest of 2011, the region’s economic growth will be slashed by 1.5 percentage points.
• Threat to the Philippines[1]. A 10% increase in local food prices could add 1.37 million people to the ranks of the poor. In addition, a 30% average increase in global food prices is estimated to cut the country’s gross domestic product (GDP) growth by approximately 0.4 percentage point for 2011-2012. If a 30% rise in Brent crude oil prices is observed at the same time, growth could decrease by 1.2 percentage points this year and 0.9 percentage point next year.
• Short-term measures. In the Philippines, price controls have been set by the National Food Authority. In addition, food aid in the form of a rice subsidy program was cited. However, although it accounts for 70% of public social protection expenditures, only 24% of poor households can access it and only 46% of its beneficiaries are actually poor.
• Long-term solutions. The ADB noted that governments should focus on providing long-term solutions for rising food and fuel prices by undertaking productivity improvements, increased agricultural investments, stronger market integrations, targeted subsidies, and global/regional cooperation.

Source:

“Fuel, food price hikes a major threat -- ADB.” Business World, 26 April 2011, from http://www.bworldonline.com.

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[1] The Asian Development Bank (ADB) and the National Economic and Development Authority (NEDA) declared that although food comprises a significant portion of the Consumer Price Index, it does not translate to higher inflation in the Philippines because domestic rice prices are not seriously affected by global rice prices. In fact, local rice prices have actually dropped due to price controls and an appreciating peso.