No Free Lunch

Green turns blue

/ 05:18 AM December 07, 2018

This article isn’t about basketball, and the team colors that mark the most prominent rivals in our interuniversity basketball league—otherwise, I would be talking about maroon and blue, denoting the actual finalists in the just-concluded season.

Admittedly, the colors in the prominent basketball rivalry have determined the color-coding of my presentation slides on the economy through the years. As an Ateneo professor for the last 18 years, my slides depict the good news in blue, and bad news in the other color. Even so, I’d tell my audiences that even as I wear a blue shirt, my underwear is maroon. Hence I would have been as jubilant (perhaps more so) if the University of the Philippines had won the recent championship.


While it was not meant to be, it was accomplishment enough that the UP Fighting Maroons made it to the University Athletic Association of the Philippines basketball championship this year. Someone earlier posted a “warning” to the Ateneo Blue Eagles not to let their guard down, as UP had not lost a championship final in 32 years—but that’s because it never made it to one for that long.

Basketball aside, my title really refers to how recent bad news on the economy has finally turned good (and will thus turn blue in my updated presentation slides), just as I had anticipated last week. After accelerating since the beginning of the year, the year-on-year inflation rate has finally slowed down to 6 percent last month, from 6.7 percent in the previous two months. This means that the average P100 expenditure we made a year ago would now cost us P106 (no longer P106.70, as was true in August and September). That is, the accelerating rate of price increases from last year has been arrested for the first time this year.


The drop in the inflation rate doesn’t mean that prices have dropped from a year ago, as I suspect many would still think. I used to be branded a liar by some radio commentators back in the 1990s, when it was part of my job to announce the latest inflation rates. The commentaries would say “How can Habito claim that the inflation rate has dropped, when prices keep on rising?”

It bears constantly clarifying that the word “inflation” itself refers to the rise in prices, and a lower inflation rate means that prices are still increasing, but at a slower rate. Otherwise we would be using the word “deflation.”

The even better news is that prices have actually gone down (yes, deflated) on average, against the previous month. In a recent column, I clarified the distinction between the year-on-year (Y-O-Y) inflation rate that’s widely reported in the news, and the “real time” or month-on-month (M-O-M) rate. Last month, the average price level as measured by the Consumer Price Index actually fell 0.2 percent from the September level. This was driven by price declines in two major spending categories: Food and Non-alcoholic Beverages (-0.7 percent); and Housing, Water, Electricity, Gas and Other Fuels (-0.1 percent).

Taking electricity, gas and other fuels alone, the drop was 0.5 percent, reflecting the significant decline in world crude oil prices that I wrote about recently. Meanwhile, falling food prices have resulted from the easing of supplies due to the (belated) entry of rice imports, and recovery in production of other food commodities.

All together, the latest inflation news signals the commencement of the price slowdown that the Bangko Sentral ng Pilipinas had always anticipated to happen in the latter half of the year. Thus, while the year-to-date average inflation rate has been 5.2 percent, we can anticipate the annual rate to normalize back to around 4 percent next year.

The remaining challenge lies in making overall inflation penalize poorer households less than it does the rest. Areas outside Metro Manila, where the bulk of our poor reside, still see higher Y-O-Y inflation (6.2 percent versus 5.6 percent in the city). Food inflation remains higher than average, at 8 percent. However, food prices actually fell 0.9 percent from the previous month, which is welcome news for the poor, signaling that the cost of food is becoming less of a burden to our poorer households. And that is blue news.

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