Prices rise 5.7%, fastest in 5 years

MANILA, Philippines — Consumer prices rose 5.7 percent in July, the fastest in five years, fueled mainly by faster increases in the prices of food and beverages, the Philippine Statistics Authority (PSA) reported yesterday.

The headline inflation for July rose at a faster pace than 5.2 percent in June and 2.4 percent in July 2017. The uptrend was attributable mainly to the 7.1 percent annual growth rate in the index of food and non-alcoholic beverages. The indices of nine out of 11 commodity groups registered faster increases during the month.

This brings the year-to-date inflation average to 4.5 percent.

Core inflation rate, which excludes selected food and energy items, accelerated by 4.5 percent in July, likewise faster than 4.3 percent in June and 2.1 percent in July 2017.

Prices rose faster in the National Capital Region (NCR) as seen in the regional inflation growth of 6.5 percent in July. This was faster than 5.8 in June and 2.9 percent in July 2017. Increases were seen in the prices of food and non-alcoholic beverages; alcoholic beverages and tobacco; clothing and footwear; housing, water, electricity, gas and other fuels; healthcare; transportation; communication; as well as recreation and culture.

Consumer prices likewise rose faster in areas outside NCR where inflation spiked to 5.5 percent in July from 5.1 percent in June and 2.2 percent in July 2017. Faster mark-ups were seen in all commodity indices except for those of recreation and education.

The headline inflation figure in July was well within the 5.1 to 5.8 percent forecast of the Bangko Sentral.

Economist Alvin Ang, director of the Ateneo de Manila Center for Economic Research, said inflation is still seen to reach the end of the BSP target band, especially if the demand for basic commodities greatly outpaces supply and prices of utilities rise.

“It will probably still be high for August around the same level or even higher if supply of basic commodities remains tight and utility rates go up,” he said yesterday.

Ang agreed with market and government consensus that inflationary pressures are expected to ease next year and settle within the two to four percent forecast range next year.

“Next year (inflation) could be lower but not below 3.50 percent,” he added.

In a joint statement, the government’s economic managers said the steep rise in consumer prices in July comes mostly from supply-side factors, especially with regard to rice supply. Thus, the need to address supply constraints must become the utmost priority of government.

These measures pertain to improving agriculture productivity and, in the short term, implementing a strategic trade policy to address supply constraints that include the passage of the bill introducing amendments to the Agricultural Tariffication Act of 1996 to replace the quantitative restriction (QR) on rice, with tariffication to give the private sector a free hand in the importation of the staple. This is expected to stabilize rice prices and address artificial rice shortage in the country.

Passing the bill into law would pave the way for the removal of the QR on rice imports and the imposition of the 35-percent tariff rate instead. The QR on rice imports is a special privilege granted by the World Trade Organization (WTO), which has been extended three times since it was first imposed in 1995.

This entails restricting the volume of inbound rice shipments to 805,200 metric tons (MT) at 35 percent tariff. Imports outside of this minimum access volume (MAV) are levied higher tariffs.

The tariff revenues to be generated would be plowed back to the agriculture sector through the Rice Competitive Enhancement Fund (RCEF) to support projects that would modernize the rice industry and enhance its efficiency. Part of the fund would be used to directly support rice farmers, especially those who would initially be displaced by the removal of the QR, to diversify into other economic activities.

The economic team also called on concerned government agencies like the Department of Trade and Industry and the Department of Agriculture to implement a stricter price monitoring scheme to ensure that no unscrupulous individuals or groups are manipulating the prices of goods.

They also noted that to cushion the impact of rising fuel prices, the government needs to complete the implementation of the Pantawid Pasada Program, which provides a lump sum subsidy of P5,000 to 179,852 legitimate jeepney franchise holders registered this year.

50-basis point hike

Euben Paracuelles, senior economist for Southeast Asia at Nomura Securities Co. Ltd., said the drivers of inflation have clearly broadened.

The consumer price index rose steadily to 3.4 percent in January, 3.8 percent in February, 4.3 percent in March, 4.5 percent in April, 4.6 percent in May, 5.2 percent in June and 5.7 percent in July due to rising global oil prices, a weak peso and higher excise taxes under Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law.

This brings the inflation average to 4.5 percent in the first seven months of the year, exceeding the BSP’s two to four percent target.

Paracuelles said Nomura now sees more significant upside risks to its inflation forecasts for 2018 and 2019 at 4.6 percent and 3.5 percent, respectively.

“We expect BSP to hike by 50 basis points at its Aug. 9 meeting, taking the policy rate to four percent. In addition, we think the policy statement should remain hawkish, with BSP clearly leaving the door open for more rate hikes ahead. With rising inflation and inflation expectations, BSP will likely underscore it remains vigilant of upside risks,” he added.

If the 50-basis point hike materializes, this will be the biggest increase in more than a decade as the central bank’s Monetary Board raised benchmark rates by 50 basis points in July 2008.

The Monetary Board has so far raised benchmark rates by 50 basis points this year through back-to-back rate hikes to curb rising inflationary pressures. It lifted interest rates by 25 basis points for the first time in more than three years last May 10, followed by another 25 basis points last June 20.

ANZ Research economist Shashank Mendiratta said the acceleration in prices was fairly broad-based in July and the headline inflation print was ahead of market expectations for the second straight month.

Mendiratta said the combination of robust domestic demand, lingering impact of tax reforms and elevated global crude oil prices continue to present a challenging environment.

“The emerging inflation trajectory warrants further tightening in our view. While we expect the BSP to increase the overnight reverse repurchase rate by another 25 basis points next to 3.75 percent this week, a more aggressive rate hike cannot be ruled out,” Mendiratta added.

BSP Governor Nestor Espenilla Jr. said actual inflation in July was at the high end of the central bank’s 5.1 to 5.8 percent forecast and consistent with the expectation of elevated inflation prevailing in 2018 but is expected to return to the two to four percent target range next year.

“We will consider all the latest data updates in determining the strength of our follow-through response in the upcoming meeting of the Monetary Board this Thursday,” Espenilla said.

The BSP chief told the committee on finance of the Senate during the briefing on the proposed 2019 National Expenditure Program that monetary authorities remain committed to meeting the inflation target of two to four percent for 2019.

Espenilla last month hinted of a strong follow through monetary adjustment in the rate-setting meeting of the Monetary Board due to elevated expectations for 2018 amid sustained price pressures on future wage and price outcomes.

“Let me say that the BSP is considering strong follow through monetary adjustment at the next meeting of the Monetary Board in August. The pace and magnitude of policy tightening will necessarily be dependent on our comprehensive and rigorous assessment of all relevant data and forecasts,” Espenilla had said.

Wage increases

Despite the recent increase in their take-home pay, workers nationwide are still reeling from high cost of basic commodities, the Associated Labor Union (ALU) said.

Alan Tanjusay, ALU spokesman, noted that the wage hikes granted by the different Regional Tripartite Wages and Productivity Boards (RTWPB) did little to improve the purchasing power of workers.        

“The cost of living is rising and workers and their families are having difficulty coping with prices of food, particularly the price of rice and electricity. But we don’t know when will government step in and extend social safety net programs to the poor workers,” he added.        

Tanjusay pointed out that while nine RTWPBs have adjusted wages ranging from P10 to P56, these turned out to be inadequate because these were divided into different sectors and were to be paid in installments.

Prior to the implementation of the TRAIN Law, he said, the average daily minimum wage was P327 a day and its equivalent purchasing power was P212.89.

After wage increases from the regional wage boards, the total average daily minimum wage rose to P330.47, but due to rising inflation the buying power still fell to P208.38 a day. 

“After another round of wage increases in some regions, the workers’ total average nationwide pay in June 2018 rose to P335 a day but its purchasing power remained at P208.83 a day,” he explained.

Tanjusay said employers have felt firsthand how prices have risen in the past months, yet no one seems to care for their workers’ well-being anymore. 

“We were looking forward for employers and companies to provide at least non-cash fringe benefits to their employees at these extraordinary times, but no such thing is happening,” he added. 

The National Economic and Development Authority (NEDA) set at P1,400 a day the amount needed by a family of five to live comfortably. 

Labor groups have petitioned regional wage boards for a P320 across-the-board wage increase. 

TUCP party-list Rep. Raymond Mendoza filed a National Living Wage Act mandating private companies to provide an across-the-board P320 wage hike.

The labor group also asked President Duterte to provide P500 worth of grocery vouchers to an estimated four million minimum wage earners to help them cope with rising inflation. – With Lawrence Agcaoili, Mayen Jaymalin