The purchasing power of the peso was at its weakest in four years as more expensive food and fuel caused inflation to accelerate to a 14-year high in 2022, according to data from the Philippine Statistics Authority (PSA).
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/)
For economists like Ateneo de Manila University’s Leonardo A. Lanzona Jr., the erosion of the purchasing power may continue given that inflation will remain an issue this year.
“The same side constraints induced by the Ukraine-Russian war persists. Second, the opening of China will increase the demand for basic material, such as oil, and so is expected to reinforce the inflationary pressures,” Lanzona told the BusinessMirror.
“Third, the recession itself could possibly reduce the demand for goods globally, but the inflation is fundamentally a supply problem, hence the recession can only make the supply constraints more significant,” he added.
Data obtained from the PSA showed that 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, which is 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 remains on top of the government’s priorities as domestic and global headwinds continue to be a challenge.
This is encapsulated in the 8-point Socioeconomic Agenda of the Marcos Administration and a devoted chapter in the Philippine Development Plan (PDP) 2023-2028. The strategies in the PDP focus on bringing down food costs.
The PDP stated that food inflation averaged 3.7 percent between 2017 and 2021 but increased faster to an average of 6.7 percent in 2018 and 4.5 percent in 2021. In 2022, food inflation averaged 6.1 percent.
“There is an urgent need to modernize the country’s agriculture and agribusiness to increase productivity and ensure that there is adequate, affordable, and nutritious food on the table of every Filipino,” Neda Secretary Arsenio M. Balisacan said.
In December, National Statistician Claire Dennis S. Mapa said the main driver of inflation was food which posted an inflation rate of 10.6 percent. This accounted for 40 percent of total inflation in December.
Among the food items, vegetables, tubers, cooking bananas and pulses which posted a 32.4 percent increase, were among the main contributors.
This includes onion which, in December, accounted for 0.3 percentage points of inflation. The contribution of rice to the increase in commodity prices was also at 0.3 percentage points.
BusinessMirror’s editorial on Wednesday noted that the price of red and yellow onions sold in Metro Manila wet markets ranged from P550 to P700 per kilo as of January 2. (Full story: https://businessmirror.com.ph/2023/01/04/what-caused-onion-prices-to-skyrocket/)
Mapa said that while inflation slowed on a seasonally adjusted basis, this was not an assurance that it has already peaked.
The top 5 food items that contributed to the 10.6 percent increase in food inflation were vegetables with a 2.7 percentage point share; meat, 1.4 percentage points; sugar, 1.2 percentage points; fish, 1.1 percentage points; and flour, 1 percentage point.
“The numbers are saying there is a slowdown but there is still a threat in terms of these food items because the weight of the food basket in the overall inflation is quite substantial,” Mapa said in a briefing on Thursday.
In a statement, the Bank of the Philippine Islands (BPI) said there is an urgent need to address structural problems. If these are not addressed, the country can expect “volatility in food prices will be a recurring problem in the coming years.”
BPI said the agriculture industry has stalled in recent years which limited the production of food products. Weather disturbances and structural problems in the sector have prevented its growth.
“Since 2010, the agriculture industry has grown only by 19 percent. On the other hand, the growth of the population has been faster at 22 percent. This has created a gap between demand and supply, pushing prices higher,” BPI said.
For his part, Lanzona said in order to address the challenges in making food more affordable starts with the right mindset: inflation is not imported. He said importation is helping the country bring down commodity prices.
Lanzona also said the government should have pushed for “a strong productivity program” at the height of the pandemic. This program should have included the promotion of industry and agriculture by means of new technologies.
This program, he added, should have included investments in human capital and the strengthening of institutions that will serve the needs of the poor.
“In other words, the government should go back to the basic business of creating jobs and reducing poverty,” Lanzona said.
Earlier, BusinessMirror reported that the administration seeks to eliminate severe food insecurity in the Philippines starting next year through various mechanisms that include the lowering of tariffs on key commodities in the short-term period.
The PDP indicated that the national government targets to increase the country’s food security level in the next six years from the baseline score of 59.3.
In fact, the economic blueprint stated that the government would eradicate severe food insecurity in the country starting this year and would remain zero until 2028.
PDP also showed that moderate to severe food insecurity, estimated at 33.4 percent in 2021, would continuously decline over the next six years until it falls to 24.4 percent by 2028. (Full story: https://businessmirror.com.ph/2023/01/03/low-tariffs-nutrition-goals-anchor-food-insecurity-fight/)