President Duterte’s economic team undertook prompt and decisive measures to rein in inflation in 2018, resulting in a marked slowdown that experts say could lead to the domestic economy picking up steam next year.

With food supply pressures easing and global crude oil prices falling, financial institutions like S&P Global Ratings and Nomura Global Research expect the Philippines to ride through the regional economic slowdown in 2019, owing to stronger domestic demand, a boost from election expenditures and the increased public spending on infrastructure.

S&P sees the Philippines’ GDP growth improving to 6.4 percent next year from a 6.2 percent forecast for 2018, while Nomura Global Research projects growth improving to 7.1 percent from 6.3 percent.

Nomura Securities Ltd., meanwhile, has lowered its inflation forecasts to 5.2 percent instead of 5.4 percent this year and 3.7 percent from of 4.4 percent next year.

“With headline inflation falling more sharply, we think inflation expectations will also start to adjust lower in the coming months, given they tend to form adaptively,” Nomura Securities said.

The Bank of the Philippine Islands (BPI) expects inflation to decline further to 3.6 percent next year, even if the second tranche of the oil excise tax increase under the Tax Reform for Acceleration and Inclusion Act (TRAIN) pushes through.

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has come up with a similar upbeat forecast, as it kept benchmark interest rates unchanged at the range of a nine-year-high 4.25-5.25 percent at the close of 2018.

According to BSP Assistant Governor Francisco Dakila Jr. inflation is now expected to trek a “lower path” over the next two years.

“Recent headline inflation readings indicate signs of receding price pressures as constraints on food supply continue to ease with the implementation of various non-monetary measures,” Dakila said. “Inflation expectations have also steadied given the decline in international crude oil prices and the stabilization of the peso.”

When inflation spiked in 2018 to above 6 percent starting in August, the Cabinet’s Economic Development Cluster led by Finance Secretary Carlos Dominguez III recommended a slew of measures that would help ease the impact of elevated inflation on consumers.

“We responded decisively to the challenge posed by elevated inflation rates,” Dominguez said. As a result, the government expects inflation to further slowdown in 2019, he added.

He said government estimates showed that the TRAIN contributed only 0.4 to 0.7 percentage points to the total inflation rate in 2018 even with the impact of the fuel excise tax adjustments, the tax on sugar-sweetened beverages (SSBs) and the increased excise tax on tobacco products.

Inflation rose in the third quarter of the 2018 as a result mainly of food supply pressures induced by seasonal and adverse weather conditions, the strong US dollar and the surge in global oil prices.

Taking into account these factors, the Economic Development Cluster’s recommendations were acted upon promptly by President Duterte through his issuance of Administrative Order (AO) No. 13, which removed administrative restrictions on the importation of agricultural products.

President Duterte also issued Memorandum Order (MO) No. 26 directing the Departments of Agriculture (DA) and of Trade and Industry (DTI) to implement measures to reduce the gap between the farmgate and retail prices of agricultural products.

MO 27, meanwhile, ordered the DA, Department of the Interior and Local Government (DILG), Philippine National Police (PNP), and the Metropolitan Manila Development Authority (MMDA) to “adopt measures to ensure the efficient and seamless delivery” of imported agricultural and fishery products from ports to markets; while MO 28 directed the National Food Authority (NFA) to immediately release existing rice stocks in its warehouses.

The other presidential directives included instructing: the DTI, NFA, PNP, National Bureau of Investigation (NBI) and farmers’ groups to form monitoring teams to closely watch over the transport of rice from ports to NFA warehouses and retail outlets; the DA to replicate the issuance of certificates of necessity to allow fish imports to be distributed in Metro Manila’s wet markets and other markets of the country; the DTI to set up public markets where producers can sell their goods directly to consumers, as a way to reduce the gap between the farmgate and retail prices of chicken and other products; the Sugar Regulatory Administration (SRA) to open sugar imports to direct users; and the Bureau of Customs (BOC) to prioritize the release of essential food items in the ports.

These supply-side measures complemented the monetary decisions of the Bangko Sentral ng Pilipinas (BSP) to anchor inflation expectations. To nip the inflationary bud, the BSP raised interest four times since May 2018 to a total of 175 basis points.

Dominguez assured the public that “the cycle of elevated inflation has peaked” and will subside over the next few months following the wide array of measures that the government has put in place to address the supply problems on rice and other food items.

He said the immediate solution to rein in inflation is to shift to a tariff-based, open trading system for rice, which the Congress has institutionalized via the Rice Tariffication Bill.

BSP and NEDA estimates show that rice tariffication could lower rice prices by up to P7 per kilo, which, in turn, would push down the inflation rate.

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