June inflation at 6.1% as food prices surge

FILIPINOS must brace for higher inflation and expect the further decline of their purchasing power, according to the Philippine Statistics Authority (PSA) and local economists.

On Tuesday, PSA data showed inflation averaged 6.1 percent in June, the highest since October 2018 when inflation averaged 6.9 percent. Year-to-date inflation averaged 4.4 percent as of June.

National Statistician Claire Dennis S. Mapa said given the steep increase in commodity prices, high inflation would likely continue in the coming months.

“We think we have not reached the peak. Based on information on the ground from our data collectors, we collect data weekly, prices of products continue to increase,” Mapa told reporters in a briefing.

In a separate briefing, the President was asked to comment on the inflation rate and he dismissed the question and he disagreed with the 6.1 percent inflation rate saying inflation in the country was not that high.

“I think I will have to disagree with that number. We are not that high,” Marcos said in a televised briefing on Tuesday afternoon.

Asked for a statement regarding the President’s comment, Mapa simply told BusinessMirror that, “The Philippine Statistics Authority stands by its report.”

Purchasing power

The rapid increase in commodity prices led to the reduction of the

purchasing power of the peso to only P0.87 centavos. This means, in order to buy goods worth P1, every Filipino must shell out P0.13 centavos more or P1.13.

Mapa said based on their estimates, the level of the purchasing power of the peso was at P0.89 in March 2022. This means, there was a P0.02-centavo decline in the value of the currency in terms of purchasing goods and services.

For the poorest Filipinos, their purchasing power is even lower. BusinessMirror estimated that for the Bottom 30 percent or the poorest 30 percent of the population, the value of the currency is at P0.72 centavos as of June 2022 from P0.74 centavos in March 2022.

“The decline of roughly two centavos per peso matters a lot, especially to the low-income households. My sense is that the inflation is dependent on the supply constraints which in turn are affected by the unexpected war in Ukraine,” Ateneo Eagle Watch Senior Fellow Leonardo A. Lanzona Jr. told BusinessMirror.

Food factor

The inflation of food and non-alcoholic beverages increased to 6 percent in June 2022 from 4.9 percent in May 2022, and this accounted for as much as 58.3 percent of the increase in inflation for the month.

The main reason for the increase in prices are meat and others, primarily chicken, which posted an inflation of 8.1 percent in June 2022 from 5.4 percent in May 2022.

This was followed by rice, costlier by 2 percent in June 2022 from 1.5 percent in May 2022 followed by fruits and nuts at 1.1 percent in June from a negative inflation of 2.4 percent.  

The increase in inflation hurts the poor more. Mapa said food alone has a weight of 34.8 percent in the Consumer Price Index (CPI) for all households and as much as 55 percent for the bottom 30 percent.

This means, on average, all households spend a third of their budget on food while the poor spend more than half of their budget on what they eat.

Meanwhile, another major cause of inflation was transportation which posted a 17.1-percent increase in prices, the highest since 2008.

Oil prices surged to $140 a barrel in June 2008 from $90 a barrel in January 2008. Prices peaked at $147 a barrel in July 2008 and declined to $40 per barrel in December 2008. (Full story: https://businessmirror.com.ph/2022/06/27/oil-price-shock-redux-200-a-barrel-possible/).

Gasoline prices rose 53.9 percent, followed by other passenger transport by road at 2.7 percent and diesel, 92.5 percent.

It was the same for the bottom 30 percent as food and non-alcoholic beverages increased 5 percent and accounted for 74.9 percent of the increase in inflation for the poorest households.

Transportation also posted a 6.8-percent increase in inflation and accounted for 11 percent of the rise in inflation for the poorest Filipinos.

“A major chunk of the increase is due to both. You can literally see it in the figures and also, food and transport comprise a very substantial share of the typical consumer basket of goods. The consumer price index is calculated by PSA using high weights for food and energy goods that are higher relative to other goods because these have a substantial share in our consumption basket,” University of the Philippines School of Economics (UPSE) Director for Research Renato E. Reside Jr. told BusinessMirror.

Future inflation

Reside said inflation in the coming months would likely be stoked by factors that reduce supply in critical goods or stimulate demand for foods and services. This will also further affect the purchasing power of the peso.

“A recession in advanced economies will not feed further inflation—it will reduce it. A major part of inflation in the USA right now is caused by their strong economy,” Reside, however, said.

For his part, Lanzona said supply constraints brought by the war in Eastern Europe will affect inflation and are among the external factors that could lead to higher commodity prices.

However, Lanzona said, certain internal factors also affect the increase in commodity prices. One example, he said, is the increase in minimum wages.

In May, the Regional Tripartite Wage Board raised the minimum wage by P33 per day. However, the National Economic and Development Authority (Neda) said it would not be inflationary. (Full story:  https://businessmirror.com.ph/2022/05/16/%e2%82%a733-daily-wage-hike-wontstoke-inflation-neda-chief/).

Besides higher wages, recent election spending was also inflationary. This means any significant increase in government spending such as subsidies, have the potential to increase inflation nationwide.

Lanzona said if the government does not implement “an effective stimulus program” to “raise productivity at a rate greater than demand, aggregate prices will just increase.”  

“These internal factors could have been avoided through proper development programs. The continued government delay will only aggravate the situation. Given these external and internal factors, inflation will continue to rise,” Lanzona said.

Addressing inflation

Socioeconomic Planning Secretary Arsenio M. Balisacan said efforts to mitigate the impact of high food and fuel costs include the passage of bills such as the Livestock Development and Competitiveness (LDC) Bill which proposes to modernize the livestock, poultry, and corn sectors in the country.

Balisacan said among the major provisions of the LDC Bill is the updating of the corn industry roadmap, along with the establishment of “competitiveness enhancement funds” for the livestock value chain.

“The government must immediately address logistical constraints to complement the government’s Plant, Plant, Plant 2 program. As the country’s inflation rate continues to increase, we must continue fast-tracking our policies to make sure that Filipinos can still travel to work and bring sufficient and healthy food to their tables,” Balisacan added.

To mitigate the impact of higher fuel prices among low-income households, the Department of Social Welfare and Development started releasing the first tranche of the Targeted Cash Transfer program on July 4, 2022.

To ease the burden of high oil prices on qualified tricycle drivers, the Department of the Interior and Local Government said over 600,000 qualified tricycle drivers are set to receive fuel cash subsidies under the Pantawid Pasada Program for Tricycle Drivers.

Moreover, the Libreng Sakay Program for all passengers of the EDSA Bus Carousel has been extended until December 2022. The Department of Transportation will also implement Libreng Sakay for Students Program LRT-2 and the PNR in the first quarter of the school year 2022-2023 or from August 22, 2022 to November 4, 2022, considering the resumption of face-to-face classes.

“To further conserve energy and ensure everyone’s safety amidst the rising number of Covid-19 cases, we must also consider the need to promote alternative work arrangements where these have been proven effective and productivity-enhancing, as well as to encourage the use of alternative modes of transportation,” Balisacan said.

“In the long term, alternative modes of transportation may alleviate transport fare pressures and reduce the reliance on global fuel. It will also promote greener and more sustainable transportation moving forward,” he added.

Inflation nationwide

Meanwhile, inflation in NCR increased to 5.6 percent in June 2022, from 4.7 percent in the previous month. In June 2021, the inflation rate was registered at 2.6 percent.

The uptrend of inflation in NCR for the month of June 2022 was mainly attributed to the higher annual increase in the food and non-alcoholic beverages index at 6.1 percent in June 2022, from 4.6 percent in the previous month. This was followed by the Transport index which grew by 17.2 percent annually.

Following the trend of the Philippines and NCR, inflation in Areas Outside NCR (AONCR) rose to 6.3 percent in June 2022. In the previous month, inflation was registered at 5.5 percent and in June 2021, 4 percent.

The upward trend of inflation in AONCR in June 2022 was brought about by the higher inflation for food and non-alcoholic beverages at 5.9 percent, from 4.9 percent in the previous month. In addition, the transport index also contributed with 17.1 percent annual growth, from 14.7 percent in the previous month.

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