MANILA – The National Economic and Development Authority (NEDA) expects the country’s headline inflation rate for full year 2014 to fall within the government’s target of 3.0 to 5.0 percent for the year, in the absence of major economic shocks.

This is despite headline inflation increasing to 4.5 percent in May 2014 due to the rise in the prices of food, electricity, and petroleum.

“However, the balance of risks to the inflation outlook remains slightly tilted toward the upside,” said Economic Planning Secretary Arsenio M. Balisacan.

“Potential increases in food prices may emanate from weather disturbances such as the possibility of an imminent El Nino, the depreciating peso, and the pending petitions for further adjustments in utility rates, transport fares, and wages,” he added.

Moreover, headline inflation rate for year-to-date stood at 4.1 percent, still within the Development Budget Coordination Committee (DBCC)’s inflation target of 3.0 to 5.0 percent for 2014.

Inflation in the food subgroup rose to 7.1 percent in May 2014 from 6.5 percent in April 2014 as almost all major food items showed higher year-on-year growth in prices during the period. These include rice, meat, fish, milk, cheese and eggs, oils and fats, fruits, vegetable, sugar, and other food products.

“Rice prices continue to hover at high levels as supply tightness persists in the market. For corn, the high inflation rate may be attributed to lower production in some regions, particularly in CALABARZON and Eastern Visayas, as a result of dry spell and rat infestation,” said Balisacan, who is also NEDA Director-General.

“Moreover, the increased domestic demand for sugar resulted in the uptick of local prices. The higher prices of other domestic food products mainly reflected the rising prices in the international market,” he added.

As for non-food items, inflation also picked up to 2.9 percent in May 2014 from 2.6 percent in April 2014 and 1.8 percent in May 2013. This is due to the rise in the price indices of actual rentals for housing (1.8% from 1.5%); electricity, gas and other fuels (7.2% from the revised 5.8%) and operation of personal transport equipment (6.3% from 5.3%).

“The upside risks to inflation especially on food, while still manageable, need to be addressed. In the short term, the interventions can focus on ensuring supply sufficiency by improving the level of inventories and the efficiency of distribution systems,” said Balisacan.

He underscored the increasing probability of El Niño beginning in the third quarter of 2014. Thus, the government should intensify efforts to implement programs that will help provinces and cities highly vulnerable and moderately vulnerable to the adverse impact of a prolonged dry spell, he said.

“We should provide further support to precautionary steps that are already being undertaken by the Department of Agriculture to avert any adverse impacts of the incoming El Niño.” said Balisacan.

These steps include cloud seeding operations to induce rains in major watersheds and farming areas, distribution of shallow tube wells and drought-tolerant crop varieties, and provision of assistance to farmers who prefer crop shifting to drought-resistant crops.

“But equally important is ensuring that the measures undertaken by the government to help maintain a manageable rate of inflation will remain supportive of economic growth,” he concluded.