Waging a hot battle against inflation

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Hannah Viola (philstar.com) - May 6, 2018 - 10:05am

(First published May 5; 10:17 a.m.) For the past weeks, Filipinos have not only complained
about the extreme heat levels but also the heated rise of inflation.

Based on the latest Inflation Consumer Price Index Report by the Philippine Statistics Authority
(PSA), inflation rates significantly rose to 4.3 percent in the first quarter of 2018 from 3.8
percent in February and 3.4 percent in January.

Higher price increases in selected food commodities, as well as alcoholic beverages and tobacco
products, due to the passage and implementation of R.A. 10963 or the Tax Reform for
Acceleration and Inclusion (TRAIN) law, were the main causes of inflation in the first quarter of
this year.

On an international scale, the recently published Commodities Price Data of the World Bank
likewise showed a mounting trend of inflation. Energy prices and non-energy commodities for
low- and middle-income countries, such as the Philippines, have climbed from 81.0 percent in
March to 87.6 percent in April and 88.1 percent in March to 89.7 percent in April, respectively.

Consumers take the heat of the economic climate

As the prices of food, non-alcoholic and alcoholic beverages, tobacco, housing, water, electricity,
gas, household equipment and maintenance, health, restaurant and miscellaneous goods and
service exhibited higher annual rates this month, consumers clamor for a mechanism to soften
the blow of the inflationary pressures.

Consumer confidence has consequently weakened as prices of basic commodities rise, and are
expected to further rise in the coming years.

Data from the Consumer Expectations Survey of the Bangko Sentral ng Pilipinas reveal that the
overall confidence index has considerably declined from 9.5 percent for the fourth quarter of
2017 to 1.7 percent in the first quarter of 2018 brought about by consumers’ anticipation of
higher prices of goods, low income, and increase in household expenses as measured by three
indicators namely, the country’s economic condition, family financial situation, and family
income.

Food inflation spiraled to 5.0 percent in the first quarter of this year from 3.4 percent in the
previous quarter. Data from the Philippine Statistics Authority show that annual inflation in the
country’s food alone index increased by 5.7 percent in March, which affected the mark-ups in
rice, corn, fish, fruits and vegetables.

Meanwhile, consumers have already paid for higher electricity rates for the third straight month
in April. As provided in the rates archive of Meralco, generation charges have spiked from
P4.6548 per kWh from February, P5.2962 from March and P5.4735 per kWh for April, or a total
of P0.1773 per kWh increase in the electricity bill.

For the second quarter of 2018, consumer spending on electricity, food, non-alcoholic and
alcoholic beverages, fuel, water, and transportation is expected to increase, suggesting that
inflationary pressures could come from these goods and services.

Inflation hits working class and the poor the most

While price hikes cut across sectors and all segments of the population, whether high-income,
middle-income and low-income earners, the impact of the inflationary pressure is most felt by
the working class and the poor.

Although the latest unemployment rate (5.3 percent), as presented in the Current Labor Statistics,
has decreased by 1.3 percentage points from the same period last year (6.6 percent), the
sentiment of the working class reflects otherwise.

Data from the First Quarter 2018 Social Weather Survey found adult joblessness at 23.9 percent
(est. 10.9 million adults), 8.2 points above the 15.7 percent (est. 7.2 million adults) in December
2017, a point above the March 2017 rate of 22.9 and the highest since the 25.1 percent in
December 2016. The same survey show that joblessness rose in all areas except NCR, in both
urban and rural areas, among both men and women and among all age groups.

Inflation expectation: An upward trend

Inflation is not expected to ease immediately as rates in 2018 and 2019 are forecasted to go up.

Based on the First Quarter Inflation Report of 2018 by the BSP, this increase is attributable to the
implementation of the TRAIN law; possible second-round effects of the TRAIN law such as
higher wages and transport fares; rise in the prices of goods and services due to TRAIN; higher
and volatile global oil prices; rise in utility rates; weakening peso; higher government spending
on infrastructure; possible US Fed rate hike; and the 100-basis point reduction in reserve
requirements.

Cooling effect: What goes up must come down

While the government has provided for unconditional cash transfers for 10 million poor
households, fuel vouchers for jeepney franchise holders, worker subsidy in the sugar industry,
discounts on PUVs, NFA rice, and TESDA training as measures to soften the blow of the
TRAIN law for the most affected segment - minimum wage earners, the unemployed and the
poorest half of the population, the delayed implementation of these programs intensifies the
burning inflation that we are all experiencing.

It remains to be seen whether government measures and reforms such as refraining from raising
interest rates and amending the limit on overseas purchases of rice can help mitigate the effects
of inflation. It cannot be stressed enough that mechanisms to cool the intense economic climate
of the Philippines must be timely and appropriate.

To help ease our inflation situation, government should shift its policy priorities in monitoring
and managing the risks to inflation pressures and expectations in the coming years without
burdening the ordinary Filipino consumers even more.

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