Monday, September 24, 2018
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No Free Lunch

Behind the dark clouds

I recently called attention to “dark clouds” that we need to watch, seen in weakening numbers on the economy, particularly accelerating price inflation, rising unemployment, and slowing growth. These weakening signs must be arrested before they turn into a trend. Let’s take a closer look to understand where the weaknesses are coming from.

Let’s start with rising prices. Last month’s year-on-year inflation rate of 3.4 percent was the fastest seen in 28 months. It went as low as 0.4 percent in late 2015, but sped up last year, especially in the latter half, mostly owing to faster increases in food and energy prices. What’s bad about inflation that’s driven more by food prices is that it takes a heavier toll on the poor, for whom food makes up a dominant portion of the family budget. As a general category, food prices rose by 4.2 percent last month, and even though it actually slowed down slightly from 4.3 percent in February, it still rose significantly faster than overall inflation.


Price rises were notably faster in rice and meat, which led Socioeconomic Planning Secretary Ernesto Pernia to eye the government’s import constraints as the likely culprit. “Inflationary pressure may ease following the removal of quantitative restrictions on rice importation, and the timely augmentation of supplies,” he noted. Rice alone takes up almost a tenth of the average Filipino family budget, and for poor families, an even bigger share. This is why the ongoing debate on rice importation is so critical, given the profound impact of the price and accessibility of the commodity on the welfare and nutritional status of the poor. Analysts have attributed the much higher incidence of child malnutrition and stunting among Filipinos relative to our neighbors to the much higher prices Filipinos pay for rice, rendering it less accessible to large numbers of people.

The other major reversal has been in the jobs situation. After three years of successive decline in the officially measured unemployment rate, and having already dropped below 5 percent in the last few quarters, joblessness jumped anew to 6.6 percent in January. The quarterly Labor Force Survey reports an overall loss of 700,000 jobs over the past year (from January 2016 to January 2017). This is alarming given that an average of one million new workers join our labor force yearly. The
data clearly show agriculture to be the main reason, with a recorded loss of nearly 800,000 jobs, while services also lost 64,000 jobs. The silver lining was industry’s gain of 149,000 net new jobs, almost all of it in construction. Utilities also gained 17,000 new jobs, but mining lost 36,000 jobs for reasons now well known, and manufacturing similarly lost 9,000 jobs.

Did new restrictions on contractualization have a role in the jobs decline? At first glance, it would appear otherwise; there was actually a net gain of 361,000 jobs in wholesale and retail trade (where contract employment is common), and vehicle repair. But the data don’t distinguish trade jobs in large retail establishments from those of self-employed vendors in the informal sector or “underground economy.” One gets a clue from the statistic on individually self-employed workers, whose numbers rose by 370,000, suggesting that the rise in trade jobs was mainly in the informal sector. The numbers could thus still be consistent with thousands of jobs having been lost in the formal retail trade sector, where contractuals tend to be most prevalent—but more detailed data need to be gathered for more conclusive evidence.

As for slowing economic growth, agriculture has been the main culprit, having declined by 1.3 percent last year, even as industry and services grew briskly. The sad truth is that the observed weaknesses, whether in presyo, trabaho or kita, all point to bad agricultural performance. That is how important the sector is. We simply need to stop neglecting agricultural products with high income potential because of an inordinate preoccupation with rice, and instead emulate the fast growing and much more diversified agriculture our neighbors have had. Every Filipino will be all the better off for it.

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TAGS: economy, inflation, price inflation, rising unemployment
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