Faster inflation underscores urgency of new cash subsidies — IBON

February 5, 2021

by IBON Foundation

As prices continued to soar amid a collapsing economy as of January, research group IBON stressed the immediate need for the Duterte administration to provide substantial aid to the poorest Filipino households. The group also said that the government can mandate a wage hike to help minimum wage-earners and their families face falling jobs and incomes during the pandemic.

According to the Philippine Statistics Authority (PSA), inflation continued to increase to 4.2% in January 2021. This is 0.7 percentage point higher compared to inflation in December 2020 and 1.3 compared to the previous year. The January inflation rate is the fastest recorded in 11 months.

Prices reportedly increased the most in food and non-alcoholic beverages to 6.2% from 4.8% in January, with fruits and fishes registering the highest increases at 9% and 3.7%, respectively.

High increases were also noted in transportation and restaurant and miscellaneous goods and services at 3 percent. In the National Capital Region (NCR), the price index of housing, water, electricity, gas, and other fuels also increased by 0.4% in January 2021 from -0.6% in December 2020.

IBON noted that with the prices of basic necessities and services rising as jobs and incomes fall, the poorest Filipino households are the hardest hit. Inflation for the bottom 30% of families increased to 4.9% in January from 4.3% in December 2020 and 2.3% in the beginning of the same year.

The poorest households need new cash subsidies to be able to cope, said IBON. Government can boost aggregate demand by promptly allocating aid to last until jobs and livelihoods are recovered. The Duterte administration slashed its allocation for emergency subsidies from Php237.5 billion under Bayanihan 1 to Php22.5 billion under Bayanihan 2, and allotted no more of its so-called ayuda under the 2021 national budget. IBON recommended Php10,000 per month for the poorest 75% or about 18 million families or Php540 billion for three months.

IBON also said that a substantial wage hike can help workers adjust to the economic crisis. The real value of the Php537 NCR minimum wage is just Php434 as of December 2020 and is not keeping up with the rising cost of living, said the group.

New cash subsidies and a wage hike are imperative in spurring household spending, IBON said. Alongside building domestic capacity to combat the pandemic and boosting small businesses and agriculture, these will be crucial in enlivening the economy and even in tempering inflation, said the group.