CONSUMERS should brace for higher commodity prices in the coming months as spiraling food and fuel prices would further hasten inflation, according to local economists.
On Thursday, the Philippine Statistics Authority (PSA) reported that inflation averaged 4.9 percent in April, the highest since the 5.2 percent recorded in December 2018. In March 2022, inflation was at 4.1 percent and it was at 4 percent in April 2021.
Food and non-alcoholic beverages accounted for 51.5 percent of the increase in inflation followed by transportation at 27.8 percent and Housing, water, electricity gas and other fuels accounted for 17 percent of the increase.
“The probability of double-digit inflation is high,” Leonardo A. Gonzales, President of Society Towards Reinforcing Inherent Viability for Enrichment (SIKAP/STRIVE) Inc., told BusinessMirror on Thursday.
Gonzales said higher inflation is possible because election spending and campaign spending are inflationary; the recent “tripling” of the prices of fertilizer will also increase commodity prices, particularly food; and the Russia-Ukraine war which is already making fuel expensive.
PSA data showed food prices rose 3.8 percent in April 2022 due to more expensive vegetables, tubers, etc which recorded a 9.2-percent increase in inflation; meat and others, 4.2 percent; and fish and other seafood, 5 percent.
Rice, Gonzales said, may not be far behind due to high fertilizer prices. This is already part of the reason for PSA’s close monitoring of rice prices.
At a briefing, National Statistician Claire Dennis S. Mapa said the PSA has increased the number of covered outlets where they obtain prices, particularly for rice.
Currently, Mapa told BusinessMirror, PSA’s data comes from 605 sample stores for rice. Majority or 506 of these outlets are in public/wet markets while 99 outlets are supermarket/grocery/stores within malls.
“For April we saw increases in the prices of veggies, meat, fish and bread—and flour—and the weights of these four subgroups in the basket are quite substantial. If the price of rice starts increasing, we will see further increase in food inflation,—Mapa told this newspaper.
Given this, Gonzales expects the Central Bank to follow the recent monetary policy stance of neighbors in the region which have already increased their commercial bank’s reserve requirements.
Gonzales said this “basic monetarist approach” is seen to “siphon off liquidity in the economy” and thus contain the increase in inflation spurred by recent global economic developments.
“Of course, you know the basic monetarist approach that higher reserve ratio requirements will siphon off liquidity in the economy. Despite its anti-investment expansionary effects, it is one of the better policy tools to handle inflation,” he explained.
Stagflation
Ateneo Eagle Watch Senior Fellow Leonardo A. Lanzona Jr. told BusinessMirror that while the “breach (in inflation) is alarming,” this will not likely lead to stagflation.
Stagflation is a combination of slow growth, high inflation and high unemployment in a country.
Lanzona said this will not happen in the Philippines as long as the economy grows. In the fourth quarter of 2021, GDP growth reached 7.8 percent, allowing full-year growth to average 5.7 percent.
“This is not yet a sign of stagflation as output growth is observed. But if this growth cannot be sustained especially, because of high unemployment, then we might enter stagflation,” Lanzona said.
Lanzona noted that when the economy grows, there is a tendency to see an uptick in inflation. High inflation is an indicator of demand which will allow GDP to grow.
Inflation, he said, can be explained by the increase in government expenditures that is necessary to grow the economy. If economic growth fueled by these kinds of factors becomes substantial, inflation will not lead to a double-digit inflation.
Unemployment
The challenge now in the country, Lanzona said, is the high unemployment. Based on PSA data, nearly 4 million Filipinos were still considered jobless at the end of 2021.
The preliminary full-year estimates of the PSA showed the country’s unemployment rate was at 7.8 percent at the end of last year. Unemployment rates in the National Capital Region (NCR) and Region 4A or Calabarzon were still in double-digits at 10.6 percent.
“I am quite concerned the unemployment rate is still quite high, thereby immiserating a substantial portion of our workers. The crucial point is that steps must be made to improve the economy equitably in light of the rising prices,” Lanzona told BusinessMirror.
Living wage
In light of the rapid increase in commodity prices, Ibon Foundation Inc. said the minimum wage in the National Capital Region (NCR) is falling even further behind the family living wage (FLW) and a meaningful increase is more urgent than ever for genuinely inclusive recovery, said the group.
Ibon said the NCR minimum wage of just P537 has fallen to less than half or 49 percent of the NCR FLW of P1,087. This means, Ibon said, wage-earning households are continuing to suffer losses in real incomes and purchasing power even as the economy reopens.
The organization said the real value of the NCR minimum wage has fallen by 9.6 percent since the start of the Duterte administration. If the government does not give a large wage hike in its twilight weeks it will be the only one of the six administrations in the past 36 years which will see a decline in the value of real wages over its term.
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