Inflation: reality vs expectations

It is ironic that although the Philippine economy posted a full-year growth of 6.7 percent in 2017, many Filipinos are not too enthusiastic about it. According to the recent Pulse Asia survey, 98 percent of Filipinos affirm that the prices of basic commodities have risen since January. People are now more concerned about how they will cope with the surge in commodity prices.

In the first quarter of 2018, the inflation rate continuously increased from 3.4 percent in January to 3.8 percent in February and 4.3 percent in March. The last is so far the highest monthly figure since 2013.

The latest Bangko Sentral Consumer Expectations Survey also shows that consumer confidence, while still positive, has weakened. The overall confidence index declined to 1.7 percent in the first quarter of 2018 from 9.5 percent in the fourth quarter of 2017.

The “less optimistic” sentiments of the respondents stemmed mainly from higher prices of goods, low income, and rise in household expenses.

The same survey also shows that more respondents expect their expenditures on basic goods and services to increase in the second quarter compared to the first. Increased spending is expected on electricity, food, nonalcoholic and alcoholic beverages, fuel, water, and transportation, indicating that inflationary pressures could come from these goods and services.

The increase in commodity prices was more or less expected by most Filipinos as early as last year due to the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) Law. But the current situation seems to be worse than expected.

Socioeconomic Planning Secretary Ernesto Pernia explained that based on the National Economic and Development Authority’s calculations, just 0.7 percent of inflation for 2018 at most is attributable to the effects of the TRAIN Law. The increase in the prices of crude oil in the international market and the drop in the exchange rate could also cause inflation to accelerate further.

But while the government’s economic managers try to downplay the steadily rising inflation rate, the public needs to see more serious efforts to lessen the adverse effects on low- to middle-income Filipinos.

When the TRAIN Law was being deliberated on in the Senate and House of Representatives, the government claimed that it would benefit 99 percent of Filipino households because of the proposed income tax cuts for salaried workers plus the unconditional cash transfers for the poorest families.

Three months after the implementation of the tax reform measure, Pulse Asia’s March survey reported that 86 percent of Filipinos are strongly affected by the rising prices of basic commodities. This is the prevailing sentiment in each geographic area and socioeconomic grouping (83-92 percent and 80-88 percent, respectively).

It is interesting to note that those Filipinos not at all affected by the increase in prices of basic commodities comprise only 1 percent.

To make matters worse, the “joblessness rate,” according to the recent Social Weather Stations Survey, increased to 23.9 percent in the first quarter of 2018 from 15.7 percent in December of 2017. According to SWS, its findings indicate that the estimated number of jobless adults in the country rose from 7.2 million in December 2017 to 10.9 million in March 2018.

The ultimate goal of the TRAIN Law is to seek additional funding for the government to bankroll its infrastructure and propoor programs, which, in the long run, will generate sustainable jobs and livelihoods for Filipinos.

Unfortunately, it may take at least five more years before these infrastructure projects are completed, and Filipinos, particularly those below the poverty line, can’t wait any longer for these projects to materialize.

The bigger challenge now is to implement mechanisms to mitigate the inflationary effects of the TRAIN Law, higher global oil prices, as well as the continuous drop in the exchange rate. Moving forward, the government should balance its need for increased revenue with ensuring that its reforms will not inadvertently burden Filipino consumers.

* * *

Dindo Manhit is founder and managing director of Stratbase Group.