Price impact on the poor worsens

By Christine Joyce S. Castañeda
Senior Researcher

INFLATION for low-income families accelerated in May after six straight months of slowing down, the Philippine Statistics Authority (PSA) reported on Monday.

The inflation rate for the country’s bottom 30% income households clocked in at 4.6% in May, faster than the year-on-year overall price increase of 4.3% in April, but was slower than 6.4% in May 2018.

The latest reading brought the year-to-date pace for this income segment to 4.9%, still slower than the 5.7% in 2018’s first five months.

That compared to a 3.2% headline inflation experienced by the average household in May, which is faster than the three-percent reading in April. The May headline figure likewise snapped six consecutive months of deceleration even as the consumer price index (CPI) used in measuring headline inflation uses 2012 prices compared to the CPI for the bottom 30% income households, which uses 2000 prices.

Aside from differing base years, the CPI for the bottom 30% income segment of the population reconfigures the model basket of goods, assigning heavier weight on food, beverage and tobacco (FBT), as well as other necessities as these are thought to more accurately capture the spending patterns of the poor.

“The main driver of inflation — both in overall inflation and even more pronounced in the country’s lower 30% [income households] — is food price gains,” ING Bank NV Manila senior economist Nicholas Antonio T. Mapa said in an e-mail when sought for comment. “Given the heft of the food basket, we can expect overall inflation to take its cue from the movement in the food sub-component.”

In a separate e-mail, Rizal Commercial Banking Corp. (RCBC) economist Michael L. Ricafort said the year-on-year uptick for the bottom 30% inflation “may be partly attributed to the mild El Niño drought that caused a slight uptick in the prices of some food/agricultural products.”

“The uptick may also be attributed to higher oil prices and weaker peso in the earlier part of May 2019,” he added.

The FBT index recorded the biggest jump among commodity groups at 4.8% in May from 4.5% in April. Likewise, the food-alone index went up to 4.3% from 3.9% previously.

The PSA noted that relative to annual rates in April, bigger annual increases were noted for: dairy products (3.3% from 3.2%); fish (7.8% from 6.8%); fruits and vegetables (9.9% from 6.9%); miscellaneous foods (5% from 4.7%); clothing (3.2% from 3.1%) and miscellaneous goods (2.5% from 2.4%).

At the same time, decelerations were seen in fuel, light and water at 3.9% in May from 4.3% in April; and housing and repairs at 4.1% from 4.2%. The annual rate of services steadied at 3.7%.

While inflation experienced by poor households in May was faster on average, its impact varied among regions. Inflation among the bottom 30% income segment outside Metro Manila saw a faster rate at 4.6% in May from 4.3% in April, while it steadied at 2.6% for those living in the National Capital Region (NCR).

Among regions, five posted inflation rates above the 4.6% national average, with the fastest pace observed in the MIMAROPA Region — consisting of Occidental Mindoro, Oriental Mindoro, Marinduque, Romblon and Palawan south of NCR — at 10.3% in May.

Looking forward, RCBC’s Mr. Ricafort said he expects both headline and bottom 30% inflation rates to have eased in the following month “due to the relatively lower global crude oil prices among three-month lows” as well as a stronger peso exchange rate against the US dollar and “higher base/denominator effects.”

The Philippine Statistics Authority is scheduled to report June inflation data on July 5.

“The rice tariffication law and the government’s non-monetary measures would offset any continued adverse effects of the mild El Niño drought that led to some uptick in local food/agriculture prices,” Mr. Ricafort said, referring to Republic Act No. 11203 which replaced quantitative import restrictions on the staple with regular tariffs and liberalized importation, in turn slashing retail prices and, ultimately, tempering inflation.

Similarly, ING’s Mr. Mapa noted: “We’re still monitoring food prices given its importance and weight in the CPI basket, but at least rice prices continued to decline in June compared to the same period in 2018.”

Rice contributed 0.16 percentage point to the 3.6% average headline inflation rate as of May, compared to 0.33 points of the 4.1% average in last year’s first five months. The staple accounts for about a tenth of the theoretical basket of goods widely used by the average Filipino household.