SUCCESSIVE typhoons have caused commodity prices to surge in August with vegetables like tomatoes and the country’s staple, rice, leading the charge to increase inflation to 5.3 percent, according to the Philippine Statistics Authority (PSA).
The poorest Filipinos experienced an even higher rate of inflation at 5.6 percent as food inflation for the bottom 30-percent income households at the national level moved at a faster pace of 7.7 percent in August 2023 from 6.1 percent in July 2023 and 7.1 percent in August 2022.
However, the Bangko Sentral ng Pilipinas (BSP) as well as the National Economic and Development Authority (Neda) remain confident that the country’s inflation rate will slow to 2 to 4 percent by the last quarter of 2023.
“Inflation is likewise expected to remain elevated in the coming months due to continued impact of supply shocks on food prices and the rise in global oil prices. Nonetheless, inflation is still projected to decelerate back to within the inflation target by the fourth quarter 2023,” BSP said in a statement.
“The balance of risks to the inflation outlook continues to lean towards the upside owing to the potential impact of additional transport fare increases, higher-than-expected minimum wage adjustments in other regions, persistent supply constraints for key food items, El Niño weather conditions, and possible knock-on effects of higher toll rates on prices of key agricultural items. Meanwhile, the impact of a weaker-than-expected global economic recovery remains the primary downside risk to the outlook,” it added.
The prices of tomatoes nearly doubled, marking an inflation rate of 90.5 percent, the third highest it recorded in the series. Last year, tomato prices surged 130 percent in April 2022 and 125 percent in May 2022.
Regular-milled rice prices and well-milled rice prices also increased nationwide by 8.9 percent by averaging at P43.34 per kilo while well-milled rice prices grew 8.1 percent and averaged P47.63 per kilo. Overall, rice prices grew 8.7 percent in August 2023.
For the Bottom 30 percent, the inflation rate for rice was much higher at 9.1 percent while vegetable prices, which includes tomatoes, increased by 23.6 percent in August 2023.
The PSA explained that the impact of more expensive food items is greater among the poor because a larger part of their income is allocated for food. This does not mean the poor eat more but this is a function of their small incomes.
It added that paying for the same goods that richer households pay for at the same prevailing prices means a larger part of the poor’s meager income goes to food expenses.
“Inflation reduces the workers’ purchasing power and reduces real income. This means that for the same amount of money, less goods will be bought. This can to greater amount of loans for poor households whose incomes has not increased,” Ateneo de Manila University economist Leonardo Lanzona told BusinessMirror.
With the Consumer Price Index (CPI) reaching 122.5 in August 2023, the value of every peso is now only 0.816 centavos. This means Filipinos today need to shell out an additional P18 or a total of P118 in 2023 to purchase goods worth P100 in 2018.
For the Bottom 30 percent, their purchasing power was reduced to only 0.807 centavos. This means the poor need to shell out P20 more or P120 today to pay for goods worth P100 in 2018.
“This can (also) result in greater poverty especially for a country where a significant amount of households are just earning above the poverty threshold,” Lanzona said.
Poor nutrition, growth
With vegetables and rice prices increasing, De La Salle University economist Maria Ella Oplas expressed concern that this could lead to Filipinos, especially the poor living in urban areas where there are no readily available agricultural resources, to resort to unhealthy food choices.
Unhealthy food choices may include instant noodles which can act as both staple and viand. It is filling, tasty, and less expensive than nutritious options making these food items accessible to poorer households.
However, in rural areas or provinces nationwide, the agricultural spaces allow the poor to still include nutritious food in their diets because they can plant vegetables. This makes them more resilient to rising vegetable prices compared to those living in urban areas.
“The poor are highly elastic to price of nutritious food given the purchasing power of their money,” Oplas said. “Hence, a slight increase in the prices of healthy food will make them shift to less expensive and sadly unhealthy food. That is the sad reality of life.”
Given the recent increase in inflation, there could be some delay in terms of increasing economic growth in the second semester. Oplas expects “ber” months spending would be late and could only start in December.
Oplas said many stores in popular shopping destinations in Metro Manila like Divisoria remain shuttered despite it being the start of the “ber” season. The same was true for foot traffic, as she observed malls still lacked the usual “holiday” shopping crowd of as early as September.
However, Oplas said, being Filipinos, people will still find ways to celebrate the holiday season. Demand for various goods and services will still pick up albeit at a much later date.
“Filipinos will still celebrate. We will still create demand. But the demand will be felt in shorter time. If before September to December ang preparations [for the holidays], baka [this year] December 1 na mag start mag demand ang mga tao because of inflation,” she said.
Meanwhile, Lanzona said faster growth matters for Filipinos to see an increase in their real incomes. “Actual output value needs to go up by more than the inflation rate to achieve a higher real income. This only means that inflation causes a drag in the economy’s growth. Higher inflation then slows down the growth,” he said.
Credibility at risk
Given the high inflation rate in August, the Bank of the Philippine Islands (BPI) noted that inflation has been “above the target of the BSP for almost two years already.” Should this continue, BPI said it may affect BSP’s credibility as an inflation targeting bank.
“It should be noted that inflation has been above the target of the BSP for almost two years already. A longer period of above target inflation may affect the BSP’s credibility as an inflation targeting central bank, which in turn may limit their ability to control inflation,” BPI said.
BPI said most of the risks that could increase inflation may be found in the supply side. If not managed well, the bank expects this to pave the way for second-round effects.
It added that core inflation, meanwhile, is expected to bounce back in the last quarter. This makes it even more important to keep interest rates high to prevent it from rising again.
“We reiterate our view that rate cuts are premature at this point, considering the possibility of inflation remaining above the target of the BSP in the next 6 months,” BPI said.
Meanwhile, HSBC Global Research said given the latest inflation print, BSP may keep its policy rate unchanged at 6.25 percent in the September 21 meeting, “but acknowledge that it’s a tough call.”
HSBC said the importance of rice for Filipinos and the recent high prices could “kickstart a series of second-round effects.” This would be a policy call for the BSP in the upcoming Monetary Board meeting.
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