Rice Prices Had Little Impact On Core Inflation, But Now Peaking

Rice prices have risen strongly since mid-2023 after weather-affected harvests and India banned the export of non-basmati varieties. This impacted the food CPI in some countries, but even in the worst affected there haven’t been second-round effects on underlying inflation, the focus of central banks. Falling global cereal prices have also helped to reduce the impact. Non-Japan Asian core inflation ex China was low at 2.2% in February and headline 3.7%.

• The good news is that rice prices appear to have peaked with processed rice down 22.7% this year and rough rice futures down 3.4% m/m in March. FAO cereals fell 5% m/m and 22.4% y/y in February.
• Philippines is one of the most impacted countries by higher rice prices with CPI rice rising 1% m/m to be up 23.7% y/y in February but core CPI still eased to 3.6% from 3.8% and from 7.4% in June 2023. The Philippines has been impacted by importers rice hoarding. The government made a deal with Vietnam to provide 50-67% of total imports over five years, according to JP Morgan, which should significantly improve supply.
• Thailand is a rice exporter but its rice CPI picked up in February to 5.2% y/y from 3.9% but government measures have helped keep it contained. Headline and core inflation remain very low at -0.8% y/y and +0.4% respectively.
• Government subsidies have kept a lid on Indonesia’s rice prices with retail prices falling in January. Inflation is well contained within Bank Indonesia’s target band, despite a 0.2pp uptick in February headline to 2.8%, with core close to the bottom of the band at 1.7%.
• Other Asian countries, such as HK, Singapore, Taiwan and Malaysia, have seen rice inflation tracking below 5% y/y in recent months.

Source: MNI - Market News/Refinitiv/FAO/IMF