FILIPINOS should brace for even higher inflation in the coming months as the recent increase in fares and the holiday season will cause commodity prices to soar, according to local economists.
The economists told BusinessMirror that the decision of the Land Transportation Franchising and Regulatory Board (LTFRB) to raise fares will be inflationary and could trigger a slew of price increases and calls for wage hikes.
Last week, the LTFRB approved a P1 fare increase for jeepney fares and Modern Public Utility Jeepneys (MPUJs) for the first four kilometers; P2 increase for bus fares for the first five kilometers; P5 increase in the taxi and TNVS flagdown rate, among others.
“It [increase in prices] might be significant. That is why we’ve been saying that part of the limited budget should be used as subsidies targeted to transport and logistics so that we can forestall price increases in other goods and services. Transport and logistics have wide linkages with the rest of the economy,” Ateneo Center for Economic Research and Development (ACERD) Associate Director Ser Percival K. Peña-Reyes told the BusinessMirror.
Peña-Reyes said given the holidays and the recent increase in fares, it is possible for the country’s inflation to average 8 to 9 percent in the last quarter of the year. This means inflation will average around 6 percent this year.
In his column in the BusinessMirror, Peña-Reyes—citing data from Ateneo de Manila University Department of Economics Chairperson Alvin P. Ang— added that “a 1-percent increase in the price per barrel of oil leads to an increase of about 11 basis points in the overall inflation rate, an increase of about 11 basis points in food inflation rate, an increase of about 10 basis points in utilities inflation rate, and an increase of about 16 basis points in transport inflation rate.”
Meanwhile, University of the Philippines School of Economics head of research Renato E. Reside Jr. said the spike in transport fares will contribute to the increase in headline inflation.
Reside said one of the main routes will be to increase core inflation, which is inflation that excludes price increases in volatile food and energy prices. The Philippine Statistics Authority (PSA) said core inflation continued to increase to 4.6 percent in August from 3.9 percent in July 2022 and 2.8 percent in August 2021.
Commodities that are excluded from the computation of core inflation together account for 29.57 percent of the weights in the Consumer Price Index (CPI). The commodities that had the largest weight were cereals at 9.35 percent; Meat, fresh, chilled or frozen, 4.82 percent; Electricity, 4.55 percent; and Fish, live, fresh, chilled or frozen, 4.17 percent, among others.
“Transport prices excluding energy have a weight of more or less 6 to 7 percent in the consumer basket, so fare increases can have a nontrivial effect on inflation. I do not have an estimate of how much this might be though, and the effect also depends on the size of the relative increases in transport fares,” Reside said.
Wage, interest rate hikes
De La Salle University economist Maria Ella Oplas told the BusinessMirror that higher fares could lead labor groups to clamor for wage increases. This, unfortunately, is a domino effect of the fare hikes.
Oplas stressed that a possible increase in wages is “cost-push” inflation that will make goods and services more expensive. This is fuelled by the fact that the country is already in the ’ber months, which spurs demand for various commodities.
“Let us not forget that it’s ’ber season already so we know that as scheduled, demand by the opening of the economy and the coming Christmas season will pull up prices,” Oplas said. “So that is a double effect. It is increasing because production cost increased and at the same time demand is pulling it up as well.”
Oplas added that the recent spike in prices is a bane, even for overseas Filipino workers’ families currently benefiting from the weak peso. The peso closed at P57.43 to the dollar on September 16, another all-time low for the local currency.
The gains in the exchange rate of OFW families when remittances flow in time for the holidays may be offset by the increase in consumer prices, according to Oplas.
Given this, Peña-Reyes and Oplas said it is also expected that the Central Bank will have no choice but to raise interest rates further.
Peña-Reyes said this is especially the case if inflation rises to 8 percent to 9 percent. This could prompt the Monetary Board to raise interest rates by another 100 basis points.
This, despite the pronouncements of the Asian Development Bank (ADB) that the Bangko Sentral ng Pilipinas (BSP) is already the most aggressive Central Bank in terms of hiking interest rates in the region (Full story: https://businessmirror.com.ph/2022/09/15/bsp-most-aggressive-in-hiking-policy-rates/).
“Depende din sa galaw sa [It also depends on developments in the] US. If US hikes [interest rates], we need to preserve interest differential to keep dollar investments here and prevent further weakening of peso, which feeds into inflation because of our trade deficit [importing oil, food, production inputs, etc.]. Vicious cycle, as described by Dr. Ang,” Peña-Reyes said.
Based on the LTFRB decision, jeepney fares for succeeding kilometers will also increase to P1.8 from the current P1.5 while for MPUJs, the approved increase was P2.2 from the P1.8 per kilometer rate.
For ordinary city buses, the LTFRB said the succeeding kilometer rate will increase to P2.25 from the current P1.85 while the succeeding kilometer rate for aircon buses will be P2.65 from the current rate of P2.2 per kilometer.
For provincial buses, the per kilometer rate was raised to P1.9 from the current P1.55; for deluxe buses, P2.1 from P1.75; Super Deluxe, P2.35 from P1.95; and luxury, P2.9 from P2.4 per kilometer.
LTFRB said the rates were approved in consultation with the National Economic and Development Authority, the Department of Energy, and other key transport stakeholders.
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