The higher inflation rate of 6.4 percent in July dominated newspaper headlines last week. The key economic data deserves prominent treatment in the media because higher inflation affects everybody—it erodes the purchasing power of every Filipino consumer and increases the poverty rate.
But inflation, if managed well by the government, will not constrict economic growth for the long-term period. The administration of President Ferdinand Marcos Jr. at the outset attacked one of the cores of high prices. President Marcos has focused on agriculture, even assuming the leadership of the Department of Agriculture, in his bid to raise the sector’s productivity and empower our farmers and fisherman, lower food prices and secure our supply.
Rising food prices and the increasing cost of fuel are the main culprits behind the elevated inflation rate in July. The price index of food and non-alcoholic beverages, per the data released by the Philippine Statistics Authority last week, increased 6.9 percent in July, or higher than the 6.0 percent in June. The transport index jumped 18.1 percent, after a 17.1-percent rise in June.
Our economic managers are well aware of the root causes of inflation. Following the lead of President Marcos, the National Economic and Development Authority reiterated the administration’s commitment to ensure food security and affordability, lower transportation and logistics costs to check the further rise in inflation, and protect Filipino consumers.
Economic Planning Secretary and Neda Director-General Arsenio Balisacan assured Filipinos last week that the Marcos administration would ensure sufficient and healthy food on the table of every Filipino.
President Marcos’s focus on agriculture is timely. The sector plays a key role in sustainable economic growth that will ultimately reduce the poverty level in the long-term period. Making the agriculture sector more productive and vibrant will directly reduce the poverty incidence in the Philippines and rein in the inflation rate.
The poverty incidence in the countryside is high simply because our farmers and fishermen are less productive and, thus, unable to contribute their share to the gross domestic product. A bigger agriculture output will lower food prices and consequently reduce the poverty incidence rate.
The Duterte administration was near its target of reducing the poverty level to 14 percent by the end of its term until Covid-19 struck in 2020. The Philippine economy has expanded 6 percent to 7 percent annually and was on its way to meeting the lower poverty incidence goal.
President Marcos, meanwhile, has vowed to reduce energy, transport and logistics costs, especially for the vulnerable sectors of our population, by way of selective subsidies, to shield them from high oil prices spawned by the Ukraine-Russia conflict.
Oil prices in the world market have wreaked havoc on the global economy and caused higher inflation in the Philippines, as well as in the advanced economies of the United States and Europe. But oil prices cannot remain high for an extended period—they will crimp demand and lead to a possible global recession.
Those recession fears have sent crude prices last week tumbling to their lowest level since before Russia’s February invasion of Ukraine. Benchmark Brent crude futures on Thursday fell $2.66 a barrel, or 2.75 percent, to $94.12, the lowest close since February 18. West Texas Intermediate crude futures, meanwhile, dropped $2.34, or 2.12 percent to $88.54, the lowest close since February 2.
This is good news for the Philippines and a relief to the transportation sector. The drop in international oil prices in my opinion, however, is not yet a clear trend that they are about to decrease further. It may be safe to assume, though, that global oil prices may have reached their peak, unless another geopolitical tension emerges.
The same is true with the Philippine inflation rate. It may be close to nearing its peak once the government untangles the bottlenecks hindering the supply chain. But for all intents and purposes, the government has put the inflation rate in the Philippines under control.
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