LOCAL economists are proposing a number of measures, including going after smugglers and hoarders as well as raising real wages, to rein in inflation and stimulate the economy this year.
In an email to BusinessMirror, former Dean of the University of the Philippines School of Labor and Industrial Relations (Solair) Rene Ofreneo said the recent spike in inflation can be contained if the government more proactively runs after smugglers and hoarders.
Ofreneo said disruptions caused by the Russia-Ukraine war are expected to continue, as well as the US-China trade tensions, albeit at a lesser degree. These are among the factors that will make trade an important area for the government to focus on this year.
“Nobody can confidently say inflation has peaked. It is well if we were not so import-dependent on many things, especially basic goods. To stop inflation, the government should take seriously the campaign against smugglers, hoarders, etc.,” Ofreneo said, partly in Filipino.
Inflation is not the only concern, however. Former Socioeconomic Planning Secretary Dante B. Canlas said real wages have been declining and workers are due for an increase to cope with high prices.
Canlas said the government can start with adjustments in the wages of teachers, doctors and allied medical workers in public schools and hospitals. These workers can help the government address education and health gaps.
For private workers, Canlas said, wage adjustments can be negotiated by employees and employers facilitated by the National Wages and Productivity Commission and the regional wage boards. “The administration must arrest further declines in real wages—those are wages in current pesos adjusted for inflation,” Canlas stressed in an email to this newspaper.
“A little introspection leads us to believe that there have been labor-productivity gains that merit new wage orders. This is evident for one from the 2022 growth in real GDP,” Canlas said.
Waning demand
De La Salle University economist Maria Ella Oplas said inflation may have already peaked in December 2022 because of the holidays. But in the first few months of 2023, demand again is expected to wane.
In order to stimulate demand, Oplas said the government must introduce programs that encourage spending, such as lowering interest rates to allow banks to access more funds.
Canlas said further interest rates by Bangko Sentral ng Pilipinas (BSP) could “usher in economic-growth slowdowns” by dampening consumption.
“The administration must focus on addressing expected relative-price shocks. The DA (Department of Agriculture) and DOE (Department of Energy) must have credible programs that stabilize food and energy prices, respectively,” Canlas said.
Apart from these, Oplas cited the rollout of personal income tax (PIT) reduction in the Tax Reform for Acceleration and Inclusion (TRAIN) law and increase in the take-home pay of Filipinos, to encourage them to spend not just on basic needs but also on luxury items or even for domestic travel.
“The key in lowered demand is to increase demand. Therefore, make people spend. I’d be more aggressive and say enough pump priming by the government. It’s time for people to spend,” Oplas said.
China factor
Former dean of the University of the Philippines School of Economics Ramon L. Clarete said China’s reopening will not be entirely good for the Philippines.
Despite its reopening, China continues to grapple with Covid-19 infections and its “autocratic and imperial tendencies” which do not sit well with prospective investors, Clarete said.
“On a scale of 1 to 5, 5 being best news for the Philippines, China opening is a 2. China is not going to be the same powerhouse as in during the pre-pandemic for two reasons—the pandemic has impaired her own supply chains. She still has even a Covid problem to overcome. Secondly, she needs FDI’s. And there’s hesitancy on foreign investors due to this,” he said in a Viber message.
“China has to shed more its autocratic and imperial tendencies or supply chains will permanently shift to other developing countries like those in Southeast Asia. There is a relationship between how the country is governed and the investment flowing into China,” he added.
On Thursday, the PSA reported the country’s headline inflation rate reached 8.1 percent in December and averaged 5.8 percent in 2022, the highest since 2008. (See story here: https://businessmirror.com.ph/2023/01/05/ph-inflation-up-8-1-in-december/)
PSA data showed the purchasing power of the peso fell by P0.0505 centavos to P0.8674 by the end of 2022 compared to P0.9179 at the end of 2021. This erosion of the purchasing power was the largest since 2018, when it declined by P0.0525 centavos.
This means every Filipino shelled out an additional P13.26 to buy goods worth P100 in 2022. Products worth P100 in 2018, the base year used to compute the Consumer Price Index (CPI), cost P113.26 last year.
The National Economic and Development Authority (Neda) said protecting the purchasing power of Filipinos still tops government’s priorities as domestic and global headwinds continue to be a challenge.