Inflation 2018

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Today, the Philippine Statistics Authority (PSA) is scheduled to hold a press conference on the 2018 third quarter performance of the Philippine economy.

This was preceded two days ago by the report on the year-on-year headline inflation at the national level of 6.7 percent in October, the same rate as in September. This was the first time this year the inflation rate held steady. The year-on-year inflation rate was 3.4 percent in January, 3.8 percent in February, 4.3 percent in March, steadily increasing till it hit 6.7 percent in September, a nine-year high for inflation. The prior high was 7.2 percent, registered in February 2009.

Inflation is the increase in the price level of goods and services in an economy over a period of time. To the average Filipino, it is simply “pagtaas ng halaga ng bilihin at ibang pangangailangan.”

The PSA data showed higher annual increases, relative to the annual rates in September, in the indices of the following commodity groups: housing, water, electricity, gas and other fuels — 4.8 percent; furnishing, household equipment and routine maintenance of the house — 3.7 percent; health — 4.3 percent; transport — 8.8 percent; recreation and culture — 3.1 percent and restaurant and miscellaneous goods and services — 4.2 percent.

On the other hand, there were slowdowns in the annual increments in the indices of food and non-alcoholic beverages — 9.4 percent and alcoholic beverages and tobacco — 21.6 percent.

In its update on inflation given last month, the Department of Finance (DoF) stated food items had undertaken non-food items as the main driver of inflation in the first nine months of the year. The price of rice was a major contributor to inflation, growing 10 times. The increase in the prices of fish, meat and vegetables likewise contributed to inflation. The October figures showed a slowdown in the increments in the food index and, hopefully, this trend will continue in the succeeding months as food is the primary need of the citizenry, its survival item.

The DoF has stated in the short-term, rice tariffication and food policy reforms are needed to address the rice supply problem and that the Department of Agriculture (DA) is the key in bringing down food prices.

The President has issued Administrative Order 13, removing non-tariff barriers and streamlining administrative procedures on the importation of agricultural products. In his order, the President authorized the additional importation of rice and fishery products as required and directed the Bureau of Customs to prioritize the unloading and release of agricultural products imported under this administrative order. He likewise ordered the DA and the Department of Trade and Industry (DTI) to take concrete steps to improve logistics, transport, distribution and storage of agricultural products to reduce input costs. Finally, a surveillance team was created composed of the DTI, the National Food Authority, National Bureau of Investigation and the Philippine National Police, with the assistance of the private sector, to monitor the importation and distribution of agricultural products under the administrative order.

Theoretically, with all of the preceding, rice and other food items should be readily available in the next few months at affordable prices.

However, beyond the stop gap and short-term measures, the DoF stated agricultural productivity should be increased by individualizing the agrarian reform collective titles to improve property rights and incentivize farm production. Production efficiency can likewise be enhanced by reallocating the budget from favoring certain crops and production inputs into more broad-based infrastructure, research and development and support services.

Though the economists can say high food prices are the primary contributor to the high inflation rate, this is not the thinking of many lay persons. For them, it is the high prices of oil — resulting from the high prices in the world market and the tax increase on oil products implemented this year — that is the primary cause of inflation. Some in fact incorrectly see this as the primary cause of the high food prices.

There are several factors that have caused the high inflation rate we are now experiencing and, unfortunately, we are not sure if the worst is over. We will have to see whether the food supply situation will stabilize in the next few months. The effects of the US President’s Iran sanctions on both the supply and price of oil are still uncertain. Proactively, to prevent a further increase in inflation, the Philippine government suspended as early as mid-October the implementation of the second tranche of fuel excise taxes which was supposed to take effect in January. However, we have no control over the world market price of the oil we will be importing which several analysts have predicted will go up.

So, what does the average Filipino consumer do at this point?

Let us simply go back to the basics. Just spend prudently and save. This will reduce pressure, prevent stress and ensure that one has enough money to buy the basic necessities should inflation rise in the next few months.

On the part of government, in the short-term, it has the means, through the formulation of policies and the provision of budgets, to ensure adequate food supply that will keep prices down. Should the world market price of oil shoot up, it can suspend various taxes and undertake other complementary measures to keep inflation in check. In the medium and long term, it should formulate and immediately implement programs to increase agricultural productivity and decrease our dependence on imported oil.

We are too vulnerable to external shocks and we should ensure that to the greatest extent possible, we are able to internally provide ourselves with our basic needs.

What are your thoughts?

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