Inflation soars to 11.4%, domestic unrest unlikely
Inflation soars to 11.4%, domestic unrest unlikely
The prices of goods and services increased by 11.4 percent in June, the highest in 14 years and has set the pace for double-digit inflation for the coming months. The National Statistics Office released the recent inflation data Friday after much anticipation on how much higher prices were last month. The June figure, however, was beyond previous forecasts, including the central bank’s, which ranged from 10.4 percent to 11.2 percent.
It was the second highest since May 1994, when inflation was at 11.5 percent.
The June inflation rate put the average for the half of the year at 7.6 percent, well above the central bank’s full-year target of three to five percent.
In 2007, inflation averaged at 2.8 percent. The upward trajectory started early this year and picked up the pace in April, when month-on-month difference was more than two percent. In May, it was almost hit double-digits with revised figure of 9.5 percent.
Higher prices up to September
Faster pace of price increases should be expected in the coming months. According to central bank governor Amando Tetangco Jr., double-digit inflation rate levels would last up to September this year.
"The peak of the inflation path is expected to occur in the third quarter of 2008, to be followed by a steady decline towards single-digit levels in 2009," he said. Earlier, the central bank projected that the average 2008 inflation rate would remain at single digits.
The central bank, which has been setting key monetary tools, such as interest rates, based on inflation, is set to meet on July 17. Six weeks ago, it raised overnight rates by 25 basis points.
Food prices soar
Meantime, local food and energy prices, the two most prominent items that have been increasing in the past months, have caused other products and services to rise too.
Core inflation, which eliminates the impact of volatile food and energy prices, rose to 6.6 percent from 6.2 percent in May.
The cost of food, which account for half of a household’s budget, jumped 17.4 percent in June, higher than the previous month’s 14.2 percent.
The price of rice, a staple food in the country, rose by 9.3 percent compared to 5.8 percent in May. The price increases rose despite efforts by the government to provide subsidies reduce farmers’ production expenses. It also subsidized imported rice influenced by higher trade prices in the world market as exporting countries hoarded supply.
The soaring price of rice nationwide was coupled with increases in other food items, such as bread (imported flour prices were up), fruits, vegetables, meat (more expensive feeds), and fish (lesser fishing trips due to weather conditions).
Service costs up
Fuel, light and water prices rose 7.6 percent compared to 8.2 percent in May.
Oil, on the other hand, continues to break records, with crude oil reaching more than $145 per barrel. The Philippines imports almost all its oil supply.
Gasoline and diesel prices continued to increase almost every weekend causing those in the transportation industry to request for rate hikes, which is expected to result in requests for higher wage rates.
Tuition fee hikes, increments in the prices of school supplies, textbooks and medicines in June were also observed, accelerating the services index nationwide by four percent.
No domestic unrest
High inflation, however, is not likely to spur street protests and political unrest.
In a May interview with Roberto Herrera-Lim, Southeast Asian analyst of Eurasia, which measures political, economic, security, and social risks, he said that the rice situation will "not create domestic unrest…because the population probably understands that this is a global phenomenon."
He added that the government’s effort to keep rice prices more affordable to the poor is a valid social response since this was "a very severe and largely unexpected price shock." He, however, said subsidies should just be for the short term. "Once rice prices have stabilized—which will likely be at a higher level compared to what we’re used to—then the government must ease back on using this rather blunt tool of NFA-subsidized purchases and find a longer-term solution to the problem of food supply."
Ernesto Pernia, economist from the University of the Philippines, agrees. "Filipinos are naturally resilient and are not violent people. They will not agitate openly, that’s why you don’t see food riots as what you see in other countries."
Pernia, however, scored the subsidies as a political strategy in preparation for the 2010 elections.
"The government needs to do a balancing act, but its perspective is limited to short-term," said
"We have to watch out for the effect of the subsidies to our fiscal position. The impact of populist moves will not be felt immediately. Perhaps the new administration [in 2010] will bear the brunt." Pernia added.
