The peso averaged P49.2546 against the greenback in 2021, according to data from the Bangko Sentral ng Pilipinas (BSP). A year ago, the peso averaged P50.7491 against the US dollar in October and P50.2478 in December. For the whole of 2021, inflation averaged 3.9 percent, based on historical data from the Philippine Statistics Authority (PSA).
As of end-August, PSA data indicated that headline inflation rate has already averaged 4.9 percent, surpassing the 2021 figure. The highest rate was recorded in July, when it reached 6.4 percent. The August print also breached the 6-percent mark largely on higher food prices and transportation costs.
For September, the BSP projected that inflation could exceed 7 percent due to the high cost of food and electricity as well as the peso depreciation (See, “Peso decline and high cost of food, electricity may drive inflation beyond 7% in Sept.—BSP,” in the BusinessMirror, September 30, 2022). The weakening of the peso is a significant factor in the acceleration of inflation as the country is an importer of fuel and a number of food items, including rice. If the BSP forecast materializes, it would be the first time in years that Philippine inflation would breach 7 percent.Unfortunately, the worst is not yet over for the Philippine peso. Efforts of the US Federal Reserve to tame inflation would mean a stronger dollar, which could further weaken the peso. What this means for the Philippines, at least in the next few months, is more expensive imported items.
This development is taking place at a time when the celebration of the Christmas season has already started in the country. Christmas is one of the favorite holidays of Filipinos and businesses, particularly those in the retail and the food and beverage sectors, which benefit from the bonanza brought about by the so-called “ber” months. Demand during this period is so strong that consumption spending significantly boosts the country’s GDP growth.
Brisk demand during this period, however, would prove to be a bane for the Philippines this time around, as this could cause consumer prices to rise faster. Even local food items are also becoming more expensive due to the higher price of inputs, such as fuel and fertilizer, as well as the surging cost of transportation. The depreciation of the peso has contributed significantly to the increase in the prices of local foodstuff as the Philippines imports all of its chemical fertilizer requirements.
There are mechanisms in place to ensure that traders will not take undue advantage of the peso depreciation and the spike in imported commodities like oil. One of this is a food supply chain program initiated by the Department of Agriculture, which allows consumers to buy cheaper produce from the so-called Kadiwa outlets. It would do well for the government to expand this scheme to allow more consumers to have access to more affordable food items. It’s also about time that government has to step up its campaign against profiteers and see to it that traders do not take undue advantage of hapless consumers, particularly those in typhoon-hit areas.