The acceleration of inflation in February and expectations that prices would continue to rise in the coming months do not warrant an increase in wages and an adjustment in key policy rates, government officials and local economists said on Tuesday.
Following the Philippine Statistics Authority’s (PSA) release of data on Tuesday, which showed that inflation rose to a three-year high of 4.5 percent, economists said consumers should brace for higher commodity prices.
Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang told the BusinessMirror that this was mainly caused by high food prices.
“[Higher inflation rate] is expected. I think it’s because of rice. The government was not able to manage the issue well. Prices were supposed to increase, but not by much,” Ang said.
The National Food Authority’s (NFA) announcement that its stockpile would last for only 1.7 days encouraged private traders to jack up rice prices. Ang said this is due to the failure of the government to communicate properly the rice situation.
Citing the pronouncements of the Bureau of Internal Revenue, Ang noted that some of the new taxes indicated in the Tax Reform for Acceleration and Inclusion (TRAIN) law have not yet been implemented. This, he said, could cause inflation to accelerate in the coming months.
“When the full impact of the TRAIN comes, it is possible that inflation will be higher,” he said.
University of the Philippines School of Statistics Dean Dennis Mapa said the increase in commodity prices could hinder government efforts to reduce hunger and poverty.
Mapa noted the country’s hunger incidence rose in 2008 and 2012, when the Philippines experienced a rice-price crisis. In 2008 he said, the culprit was the volatility in international rice prices, while government efforts to achieve self-sufficiency in the staple caused price spikes in 2012.
“This is a no-brainer because 22 percent of the food consumption of the poor is rice, so when rice prices are high, this automatically increases their expenditures,” he said.
“Most probably they’re doing a mitigation scheme to make up for the budget given the increase in rice prices. This is especially true for those at the bottom [because they] will be affected outright,” he added.
Citing the Department of Finance, Presidential Spokesman Harry L. Roque Jr. said TRAIN was not the only cause of the higher inflation rate in February.
Roque also attributed the rise in inflation to high petroleum prices, which are dictated by market forces, and more tobacco companies complying with the provisions in TRAIN.
“The government’s estimate is still the same, only 0.7 [percent] will be TRAIN’s contribution to inflation,” he said.
‘No supervening event’
Despite the surge in the inflation rate, the National Wages Productivity Commission (NWPC) said it has yet to monitor any supervening event, which will allow for another round of wage hike in the Regional Tripartite Wages and Productivity Boards (RTWPBs).
“The February inflation rate using 2006 base year is only 0.5 percentage point higher than the BSP’s [Bangko Sentral Pilipinas] 2 percent-to-4 percent inflation target for the whole year,” NWPC Executive Director Maria Criselda R. Sy told the BusinessMirror via SMS.
“Thus, no supervening event is noted so far. The RTWPBs are closely monitoring the socioeconomic condition in the regions,” Sy added.
The NWPC defines supervening event as any extraordinary increase in basic goods like petroleum and services for a given period, which is usually for three straight months. It exempts RTWPBs from the one-year ban in granting wage hikes.
Labor groups expressed concern over the acceleration of inflation, which they attributed to the implementation of TRAIN and the weakening of workers’ purchasing power.
“The TRAIN law has fast-tracked the weakening of workers’ purchasing power and the devaluation of wages,” Federation of Free Workers Vice President Julius Cainglet said.
Partido Manggagawa Chairman Renato Magtubo said minimum-wage earners will be the “most vulnerable” to the effects of higher inflation.
Associated Labor Unions-Trade Union Congress of the Philippine Spokesman Alan Tanjusay echoed this and claimed the government failed to provide social safety nets for minimum-wage earners.
“Indigents have it easier, they have government subsidy through the CCT [conditional-cash transfer]. Meanwhile, minimum-wage earners, who are family breadwinners and major producers of goods and services, are without support,” Tanjusay said.
Former Socioeconomic Planning Secretary Cielito F. Habito, however, warned that a sudden wage hike at this point may actually be more detrimental for workers since it may trigger a “wage hike spiral.”
“If the wages are increased, the price of production will also increase, which, in turn, will raise again the prices. This is what we call a wage-hike spiral. This is the danger if the action on a wage hike will be too quick, it could feed upon itself and end up as self-defeating,” Habito said.
The BSP said the rise in local prices is a “temporary development” and dispelled fears that a rate hike is needed soon.
BSP Governor Nestor A. Espenilla Jr. said the strong growth of consumer prices is within the Central Bank’s expectations and expressed confidence inflation rate will normalize starting 2019.
“The operative word is temporary. How temporary is temporary is what needs careful analysis,” Espenilla told reporters in an interview.
“The elevated February inflation figure is in line with our updated forecast for a temporarily higher inflation than target range in 2018 due to transitory factors. Our forecast remains that inflation will decelerate back to within the government’s target in 2019,” he added.
Espenilla assured, however, that the BSP will continue to monitor developments and factor in all relevant data in their succeeding reviews of monetary-policy stance.
Socioeconomic Planning Secretary Ernesto M. Pernia said the CCT program, known locally as the the Pantawid Pamilyang Pilipino Programs, hould be expanded.
He added there is also a need to fast-track the distribution of the unconditional-cash transfer from TRAIN to help poor families cope with rising prices.
Replacing rice-import quotas with tariffs, Pernia said, will lower rice prices and raise revenues for agricultural programs, such as crop diversification and investment in disaster risk resiliency.
“These measures will stabilize prices of food items and maintain or raise the purchasing power of the bottom 30 percent of households,” he added.
“We must enforce fair consumer pricing among businesses. In January there were anecdotal reports that some of them are taking advantage of TRAIN by prematurely increasing their selling prices despite no additional input costs to their production and services brought about by the law,” Pernia said.
With Bianca Cuaresma and Bernadette D. Nicolas