How bad is inflation?
The inflation rate, or the speed at which the general price level rises, hit a three-year high last month, with a year-on-year rate of 3.5 percent. This means that on average, what you spent P100 for last year now costs you P103.50. The last time inflation was faster was in November 2014, when it was 3.7 percent. It subsequently dipped to as low as 0.4 in late 2015, but has since inched up to where it is now.
Still, this isn’t really much compared to the 19 percent we saw in 1991, when the economy was reeling under the effects of the 1990 Luzon earthquake and the 1991 Mount Pinatubo eruption, and only half the average 7 percent posted in the rest of that decade. It was much worse in 1984, when it was a manmade disaster that led to a whopping 50 percent inflation, the worst postwar inflation this country has seen. The August 1983 assassination of former senator Benigno Aquino Jr. had triggered massive capital flight and a full-blown economic crisis then.
Our inflation now compares well with that of our neighbors, with Indonesia, Malaysia and Vietnam posting 3.8, 3.5 and 3.1 percent, respectively. Still, it’s already twice what it was in the last two years (1.4 percent in 2015 and 1.8 percent in 2016), and any such speeding up of inflation must be viewed with concern. This is more so with regular surveys consistently pointing to price increases as the single biggest concern of ordinary Filipinos. After all, inflation means that without a corresponding rise in income, one’s purchasing power, hence general welfare, goes down.
There are three things worth noting about latest price trends. First, our current price increases appear to be hitting poorer Filipinos more than those in higher income groups. Price rises have been faster in basic expenses dominating the budgets of poorer families, namely food and nonalcoholic beverages, housing and energy, and transport. Prices in these spending categories rose faster than overall inflation, by 3.6, 4.0 and 4.2 percent, respectively. Prices of alcoholic beverages and tobacco went up even faster, at 6.8 percent, and while many argue that these are also consumed relatively more by the poor, I’m not as worried about these so-called “sin products.” On the other hand, prices in other vital items like education, health, and clothing and footwear went up more slowly than average, at 2.3, 2.2 and 1.9 percent, respectively.
The second interesting feature of our current inflation experience is that Metro Manila dwellers have been harder hit by price increases than provincial folk. Inflation in the National Capital Region averaged 4.9 percent, while that in areas outside the NCR averaged only 3.0 percent. NCR food prices went up by 4.8 percent, while averaging 3.4 percent outside. Metro Manila drinkers and smokers also saw a much steeper price increase of 8.1 percent, against 6.5 percent elsewhere. The same was true of housing and energy costs, which rose 4.6 percent in the NCR and 3.8 percent elsewhere. But it was in transport costs that city folk got hit most severely relative to provincial dwellers: Here, inflation was 10.7 percent in the NCR, but only 2.4 percent elsewhere.
Third, even as the year-on-year price increase sped up, it actually slowed down on a month-on-month basis. The 3.5 percent annual rate was an uptick from 3.4 percent recorded in September, after starting at 2.7 percent in January. But viewed on a month-on-month basis, the rise was 0.3 percent last month, slower than September’s 0.5 percent. This should provide some reassurance that price increases did not accelerate in real time, but actually slowed down. For this reason, the Bangko Sentral ng Pilipinas, whose primary mission is to manage the money supply to keep inflation in check, is not unduly worried, and Governor Nestor Espenilla said so in the annual gathering of the Philippine Economic Society the other day. The inflation rate remains within the BSP’s projection of 3.2-3.7 percent, and the government’s upper limit of 4 percent for the year.
It’s so far so good, then—but our economic managers must keep their eyes on the ball as inflation risks like oil price increases and a further peso slide are constantly looming.
