The inflation train: Are policy-makers all on board?

In Photo: A picture of President Duterte is seen on a mock train as protesters carrying wooden crosses reenact the sufferings of Jesus Christ during a rally on Holy Week in Manila on March 27, 2018. The group used the demonstration to dramatize the plight of the urban poor under the government of Duterte.

EVERY scoop of rice that canteen owner Lolit Gogolin puts on a customer’s plate is getting costlier as inflationary pressures increase every day.

Still, Gogolin has kept the price of the meals served in her canteen in Cavite, below P60 ($1.11) to keep customers coming in. She sells a cup of rice for P6 and viands range from anywhere between P15 and P30 each. Vegetable dishes can sell for P15 to P20 while meat dishes sell for P25 per serving to P30 per serving.

Rep. Jose Sarte Salceda: “Unless we do nothing and do more silly things, 6.4 percent should already be the peak in this inflation cycle.”

Since most of her customers are factory workers, they require more carbohydrates such as rice or noodles, Gogolin pointed out, adding these are her bestsellers. Her low prices also allow blue-collar workers to afford the food they need to perform hard labor.

But with the high prices of food items—particularly rice—there is no telling how long she can hold out boarding the inflation train. Gogolin said she can already feel the pressure especially with the recent decline in her sales and the reality that most of her customers are earning a minimum wage of only P370 ($6.85) a day or P11,100 ($205.59) a month.

“Our sales went down. But even if this is the case, we continue serving our clientele. As long as we are able to pay our people, ensure that we get some profit and meet our daily needs in the canteen, we will continue,” Gogolin said in Tagalog. “But we are looking at other ways to cut our costs.”

Causes

THE Philippine Statistics Authority (PSA) reported that the country’s inflation rate—the rate of increase of food and nonfood items—reached 6.4 percent in August.

This was higher than market expectations that were at near-6 percent or 6 percent. The national government, for its part, thought the 5.7-percent inflation rate in July was already the worst level that prices would increase.

The August rate brought year-to-date inflation to 4.8 percent, beyond the upper band of the government’s full-year inflation target of 2 percent to 4 percent. This was slightly below the revised full-year inflation forecast of the Bangko Sentral ng Pilipinas (BSP) of 4.9 percent. Even month-on-month inflation accelerated to 0.9 percent, from 0.5 percent in July 2018.

There’s enough blame to go around.

As far as Finance Secretary Carlos G. Dominguez III, Socioeconomic Planning Secretary Ernesto M. Pernia and Budget Secretary Benjamin E. Diokno are concerned, high commodity prices were brought about by two factors: fuel and agriculture.

The government could not do anything with the former since fuel prices are at the mercy of external factors. The economic team, however, said they intend to meet head-on the agriculture factor in inflation.

“The highest contributors to inflation in August are electricity, gas and fuels, fish, rice, personal transport, vegetables and meat,” the economic team said in a joint statement on the release of the August inflation report from the PSA.

Complications

FOR economists like Alvin P. Ang, the cause of the recent spike in inflation are basically supply issues that needed to be solved.

Ang told the BusinessMirror that despite farm-gate prices remaining weak, retail prices are high. This could only mean middle men are earning unforeseen profits.

For Filomeno Sta. Ana III, coordinator of nongovernment group Action for Economic Reform, the causes of high inflation rate are purely man-made.

Sta. Ana particularly noted that inflation should not be blamed on the recently passed Tax Reform for Acceleration and Inclusion (TRAIN) Law, which increased excise taxes on fuel and imposed taxes on sugar-sweetened beverages, among others.

Sta. Ana told the BusinessMirror that one major factor for high inflation is the rice shortage that could have been avoided if the National Food Authority (NFA) only allowed the private sector to import rice at the right time.

Another factor is high fish prices, which were caused by “a combination of calamity and depleting aquatic resources because of overfishing pollution and the like, compounded by regulation and governance failure.”

Consequences

ANG, director of the Ateneo de Manila University’s Center for Economic Research and Development, said failing to address the factors could lead to prolonged supply issues and high-inflation regime up to December. The only consolation is that prices would not see double-digit increases, he added.

Ang said that based on his estimates, “prices will continue to increase until September but with the way governance is going, this could even continue until December.”

However, given the increase in prices and the sensitivity of Filipino households to cost increases, it is easy for economists to foresee an increase in poverty and hunger.

Constraints

For Rep. Jose Sarte Salceda,  the root of the country’s inflation problem is government ennui.

Salceda said the only notable government response was the 50-basis-point increase in monetary policy rates. However, this measure will take anywhere between 6 months and 18 months to gain traction and contain aggregate demand, the former economic adviser of then President Gloria Arroyo added.

Still, there are also “the usual suspects,” he said. These include supply constraints due to rains in Luzon that affected vegetables, the weakness in NFA intervention that caused rice price spikes and the high prices of meat and chicken.

Salceda shares Sta. Ana’s view that other factors included high fish prices and more expensive oil due to the weakness of the peso and high global prices. He noted that the peso in August was at P53.4 to the greenback.

“Ultimately, the 6.4 percent was really due to the fact that we did little or nothing,” Salceda said. “We can no longer blame market opportunists, profiteers and rice hoarders.”

Christmas

SALCEDA added that high commodity prices can lead to wage increases. He noted Davao’s approval of an increase of P26 in daily wages this year and another P30 per day increase by February 2019.

The government itself increased the wages of military and uniformed personnel as well as civil servants. Doing so has set back the government by some P154 billion for military wage adjustments and P54 billion for civil servants.

“This poses a more problematic context to policy-makers,” Salceda said. “[We should be] quite loud in slaying the inflation monster with draconian measures so they would not show up as widespread demand for higher wages.”

Nonetheless, Salceda said he expects the September inflation to slow to 6.1 percent due to base effects. Inflation in September 2017 increased to 3 percent due to the feed-in tariffs for electricity.

“Unless we do nothing and do more silly things, 6.4 percent should already be the peak in this inflation cycle. But a return to 4 percent within 2018 is no longer possible, especially [since] we are now into the world’s longest Christmas season characterized by higher consumer spending. Returning to 4 percent is more likely to be achieved by August next year.”

Congress

THE country’s economic managers believe stabilizing rice prices may address inflation.

To achieve this objective, the government is making available 4.6 million sacks of rice in NFA warehouses to markets nationwide. The President’s economic team also expects two million sacks of rice to be delivered by September.

The DOF, Neda and the DBM said the NFA Council also authorized the importation of five million sacks that will be arriving over the next one-and-a half-months and another five million sacks will be imported early next year.

“To address the reported shortage in Zamboanga, Basilan, Sulu and Tawi-Tawi, 2.7 million sacks will be allocated to these areas. In addition, harvest has also started in many parts of the country, with the projected harvest for 2018 of 12.6 million metric tons (MT) of rice, the equivalent of 252 million sacks,” the DOF, Neda, and DBM joint statement said.

The President’s economic managers have also pinned their hopes on the President’s issuance of a directive to further simplify and streamline the licensing procedures for rice imports of the NFA. They also urged the Senate to immediately pass the Rice Tariffication bill within September.

According to Sen. Cynthia A. Villar, the Senate Committee on Agriculture and Food has already completed its report on the Rice Tariffication bill.

Countermeasures

AMONG the list of inflation-busting measures Arroyo submitted are the reduction of tariffs on meat, fish and poultry.

However, the Committee on Tariff and Related Matters thumbed down these proposals, saying the reduction in tariffs would not lead to significant reductions in prices as the duties imposed on these imported products are already low.

Nonetheless, Arroyo said the Lower House remains open to consider other legislative measures to help Duterte’s economic team to manage inflation.

“I’ve been asking for Salceda so we can sit down again and see if there are things that we suggested before that we need to stress again, or whether there are new causes of the inflation or there are new steps that need to be done so that’s on the part of Congress,” she said.

Considerations

IN hopes of helping the economic team, Salceda offered short-term and medium-term measures to curb inflation.

Foremost among his recommendations in the short term is to increase NFA rice importation and distribution to rice-deficit and food-deficit areas.

Salceda reiterated his earlier suggestion to reduce tariffs on meat products. He also urged the DTI to continue trade coordination with domestic manufacturing and trade associations for self-restraint via the Suggested Retail Price (SRP) system.

He added the BSP needs to consider another 50-basis-point policy rate adjustment, which Salceda believes could lead to an average inflation of 5.2 percent this year.

Like the economic team, he also believes rice tariffication will ease rice prices by next year and increasing public investments in agriculture will contribute to stabilizing prices.

“With the ongoing cash-based budgeting deliberations, the DA budget will increase from 1.6 percent of total budget to 2.2 percent,” Salceda explained. “During [the Arroyo administration], inflation also spiked but she was able to lower it by increasing the agriculture budget to 6 percent.”

He said increasing the agriculture budget by another P25 billion from the current P56 billion will be better used to increase mechanization, technology adoption such as hybrid rice, improve irrigation, technology extension, especially to local agricultural technologists and diversification into high-value crops.

Consumption

SALCEDA cited the need to stop the inflation momentum given the higher consumption during the “ber” months. It is important that government provides immediate relief to consumers, he said, and this will make it easier for the government to bring down inflation to 4 percent by April 2019.

Meanwhile, Marikina Second District Rep. Romero S. Quimbo reiterated his call for a moratorium on fuel excise taxes under TRAIN through the immediate passage of House Bill (HB) 8171.

HB 8171, filed by Quimbo and other lawmakers who are Liberal Party members, seeks to roll back and return to zero the excise taxes on kerosene and diesel imposed under Republic Act 10963 or the TRAIN law.

It also provides for the automatic suspension of the implementation of fuel excise tax increases under TRAIN whenever inflation exceeds the government’s target—a situation that the country now finds itself in.

“If for some reason it wasn’t evident to many in government before, this latest inflation figure should make it crystal clear that we need to act soon to prevent runaway inflation,” Quimbo said. “We have offered a solution in the form of HB 8171, and I hope our colleagues as well as the administration heed our call.”

Image Credits: AP/Aaron Favila

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A professional journalist for over a decade, Cai U. Ordinario currently writes macroeconomic and urban development stories for BusinessMirror. She has received awards for excellence in reporting on the macroeconomy and statistics. She was also cited for her contribution to statics reporting by the National Statistical Coordination Board (now the Philippine Statistics Authority). She is a recipient of journalism fellowships including the Jefferson Fellowship from the Honolulu-based East West Center. She is currently completing her Masters degree in Communication at the University of the Philippines. She graduated with a degree of Bachelor of Arts Major in Journalism from the University of Santo Tomas.