The scourge of price hikes

April 16, 2022

by IBON Foundation

In its last Philippine Economic Briefing, the Duterte administration said that it is doing everything it can to mitigate the impact of inflation on Filipino households.

Yet as urban poor and other sectors lamented in the recent “Kalbaryo ng Maralita” (Calvary of the Poor), falling incomes make it difficult for Filipinos to cope. Prices keep rising, cash subsidies are limited, and real wages keep falling.

The situation will not get better if the government does not acknowledge that the rampant jobs crisis and worsening poverty are huge problems that require big solutions.

Faster inflation

Inflation that had been slowing for six months suddenly accelerated in March 2022. With global oil and food prices remaining volatile, inflation this year may breach the government’s target range of 2-4% in 2022.

The Philippines’s 3.9% inflation rate in 2021 was already the highest in Southeast Asia and far above the 2.6% regional average. Prices kept rising with 3% inflation in January and February that suddenly spiked to 4% in March. As it is, the agriculture and energy departments are already reporting even more expensive food, oil and electricity in April.

The Philippine Statistics Authority (PSA) reported that the major contributors to March 2022 inflation were: housing, water, electricity and gas and other fuels (6.2%); food and non-alcoholic beverages (2.6%); and transport (10.3%).

The higher inflation in housing, water, electricity, gas, and other fuels between February and March particularly came from higher inflation in electricity (from 13.5% to 18%) and liquefied petroleum gas (LPG) (from 17.6% to 26.5%).  

April is seeing further price increases. This month, Manila Electric Co. customers will pay an additional Php0.5363 per kilowatt-hour (kWh) translating to a Php102 increase in the bill of households consuming 200 kWh monthly. Year-to-date increase in Meralco rates are at Php0.5988 per kWh. The price of 11-kilo LPG tanks meanwhile increased from a range of Php794-1,010 in January 2022 to a range of Php915.75-1,135.75 this month.

Food inflation will also likely keep increasing. From February to March, the main food inflation drivers were fish (2.9% to 4.3%), meat (1.4% to 2.9%), and corn (remained high at 31.3% in both months).

Since March, fish, meat, and vegetable prices have increased further by Php10-20 in April to date. The price of bangus hiked from Php160 to 180 per kilo, of pork kasim from Php330 to 350, and pork liempo from Php370 to 380. The price of common vegetables also went up such as of cabbage (Php60 to 70), eggplant (Php40 to 50), kalabasa (Php40 to 50), and pechay (Php60 to 70).

March transport inflation was primarily driven by increases in the price of gasoline (32.1% inflation in February to 36.7% in March) and diesel (46.4% to 58%). Despite recent rollbacks, the year-to-date net increases in fuel prices are still significant at Php15.00 per liter for gasoline, Php25.65 for diesel, and Php21.10 for kerosene.

No hand in price-setting

Fuel price movements causing price hikes in other basic goods and services in the first quarter of the year have been attributed to price speculation related to the Russia-Ukraine conflict. Restrained oil production in the Middle East and United States amid rising global demand are also seen as factors.

For Filipinos, however, this points to the country’s vulnerability from importing much of its oil needs. The Philippines imports most or 99.89% of its oil consumption, sourcing most of these from the United Arab Emirates, Kuwait, Russia, and Saudi Arabia. The country also imports from Asia Pacific countries like Australia, Taiwan, and South Korea.

The Oil Deregulation Law of 1998 however makes this situation worse by enabling overpricing where oil firms hike domestic prices by more than warranted by global oil price increases while reducing them by less than downward movements call for. In any case, oil prices have continued to rise even after the law was enacted.

Calls to repeal the Oil Deregulation Law, which removed government control on sourcing and distributing petroleum products, mounted anew upon consecutive oil price hikes from September to November 2021. Even the Philippine government was compelled to posture to review the policy by making the pricing scheme more transparent through unbundling.

It is taking time to amend or even repeal the law in favor of consumers. The government is however already duty-bound to meaningfully cushion the impact of price hikes in fuel and other goods and services on millions of poor and low-income Filipino households, workers and producers.

Big need, token response

Most Filipinos are incapable of coping with rising prices because their incomes are so low from only having poor-quality work, especially after the government’s overly protracted lockdowns. Despite its claims of mitigating the impact of the price hikes, the Duterte administrations’ hyped cash assistance and subsidies are insufficient and too long in coming.

Officially, over three million Filipinos are unemployed while some 15 million are in only part-time work as of the latest February 2022 Labor Force Survey. The government also already reported how the number of poor individuals increased to 26.1 million in the first semester of 2021, while households with no savings rose to over 18 million by the end of 2021.

IBON also noted that, in the National Capital Region (NCR) for instance, the minimum wage has not been increased since November 2018 and inflation has just caused the real value of the minimum wage to decline. In effect, the Php537 NCR minimum wage in November 2018 is worth Php38 or 7.1% less in March 2022 because of relentless increases in the price of basic goods and services.

Yet instead of expediting a wage hike, the economic managers merely proposed a four-day work-week without adjusting workers’ pay. They also refused to consider removing oil taxes and value added tax to moderate the increase in domestic fuel prices.

The Duterte administration also can only go so far as half-heartedly promising cash subsidies to help millions of poor and vulnerable Filipino families facing soaring prices.

In the government’s final economic briefing in early April, finance secretary Carlos Dominguez said there will be Php41.4 billion in cash subsidies for the poorest 50% of Filipino families. Divided among the country’s 13.2 million poorest families, this only comes to Php3,136 per family. In NCR, this barely covers three days of the Php1,080 family living wage as of March 2022.

It remains unclear how to reconcile this Php41.4 billion in cash subsidies with the Php500 per family for three months for the poorest 50% families that the government promised earlier, which amounts to only some Php19.8 billion. In any case, even if this Php500 is larger than the original Php200 proposed, it is still less than half of what a family of five in NCR needs to live decently for a day.

The Php5 billion transportation subsidy is also stingy and slow in coming. The administration claims to have given Php6,500 each to drivers. Transport groups however lament that only 40,000 of 175,000 public utility jeepney (PUJ) drivers in NCR, for instance, are qualified recipients due to stringent requirements. The controversial suspension of the subsidy distribution due to the election spending ban has been lifted but the government has yet to report on how many transport workers have actually received the aid promised in February.

The Land Bank of the Philippines said that more than 377,000 public utility vehicle drivers are eligible to receive the fuel subsidy. This is however less than a tenth (9.7%) of the up to 3.9 million transport workers spanning public utility vehicle, tricycle, motorcycle and taxi drivers estimated by IBON.

The Php1.1 billion fuel discount program for farmers and fisherfolk is likewise too small. With an estimated 2.9 million small farmers and 927,000 fisherfolk, this translates to only Php287 per small producer.

Additional subsidies have also been urged for micro, small and medium enterprises (MSMEs) to help them cope with the oil price hikes. But what is in place so far is a financing program by the Department of Trade and Industry (DTI) that many unbanked small businesses have difficulty availing. Relatedly, the Commission on Audit earlier reported that over Php4.9 billion in COVID-19 Assistance to Restart Enterprises (CARES) program loans remained untouched as of mid-2021.

Big steps in order

The Duterte administration’s response to the plight of the low-income majority facing relentless price hikes is as neglectful as ever. The emergency cash subsidies it gave out in 2020 at the height of the coronavirus pandemic were far from enough to compensate for the widespread loss of livelihoods from its overly harsh and long lockdowns. Ayuda was also short-lived and no longer included in the 2022 budget.

Today, the administration still does not want to allocate substantial amounts for emergency cash assistance or to even support meaningful hike wages. It claims lack of funds.

However, it refuses to touch the Php1.3 trillion Build Build Build budget which includes many non-urgent infrastructure projects. It also refuses to remove fuel taxes, stop giving tax cuts to the super-rich and their corporations, and defund the military and police.

Rising inflation in the Philippines today is in many respects a symptom of the country’s weak economic foundations. Backward domestic agriculture and manufacturing are unable to provide enough supply to keep up with demand. In the energy sector, there is still an extreme over-reliance on imported fuels despite huge potential to replace this with renewable sources. With policies like the Oil Deregulation Law, the government has allowed private profit-seeking corporations to dictate the supply and price of essential goods and services.

The situation is not a temporary problem and the country’s economic fundamentals are not sound. The Duterte administration’s response is not just tokenistic but also short-sighted and will not prevent the same problems from emerging in the future.

The government can raise the resources to fund substantial emergency cash assistance if it wanted to, as well to finance comprehensive agricultural and industrial development. The pressing needs of millions of Filipinos today only underscores the need for a wealth tax on billionaires, for instance.

The soaring prices Filipinos suffer is on top of chronic joblessness, widespread poor quality and informal work, and falling household incomes. This is a calvary borne of long-running neoliberal policies pushed by successive governments and destroying the Philippine economy – a big, deep-seated problem requiring huge solutions. ###