Signs And Wonders


Last week, we were invited to an online webinar on human rights and inflation by university students from St. Paul in Mindanao with attorney Chel Diokno who spoke on human rights. It took us several days before we agreed to participate. It would be quite a tall order to talk about the human rights dimension of the inflation problem.

It became easier to go and participate when we thought of the poor Filipinos buying a kilo of rice at upwards of P40, or a kilo of round scad or galunggong for nearly P280 a kilo. For meat as source of protein, pork liempo retails for P420 a kilo, and beef rump up to P550 a kilo — when the legislated minimum wage for non-agricultural workers is only P570 a day. Onions took the cake when in January this year, even Time Magazine featured their soaring prices, reaching as high as P600 a kilo, or by some accounts as much as P750 a kilo. A day’s work is not even enough to secure the mere base of ordinary Filipino dishes.

Of course, we are all familiar with human rights that are inherent to all people regardless of race, gender, nationality, or any other social differentiation. We are all entitled to rights to life and liberty, freedom from slavery and torture, freedom to express our opinions and feelings, right to work and livelihood.

So, it must be clear that when prices transcend the reach of ordinary Filipinos, and the Government seems helpless and unable to keep them down so that their pace of change, or inflation, becomes more manageable, the situation may be described as unjust.

We might be surprised, but inflation is not a recent phenomenon.

Even in biblical times, inflation was already a scourge to society. In 2 Kings 6, we are told that when King Ben-Hadad of Syria attacked and besieged Israel during the time of King Jehoram, the whole country experienced extreme inflation. The protracted siege resulted in a food shortage and run-away inflation. Verse 25 reported that “a donkey’s head was sold for 80 shekels of silver, and the fourth part of a kab of dove’s dung for five shekels of silver.” Earlier, in 1 Kings 10:29, a whole live horse cost only 150 shekels of silver. During the siege, just a head of a donkey — which was not normally eaten — already set back people by 80 shekels of silver. Even the dung of doves sold for five shekels of silver, something that an average worker would have to earn over a few months.

Inflation can also be exaggerated. At some point in Zimbabwe, their average wage was just enough to buy them 200 grams of coffee! An ultra-high inflation rate has become the norm in Zimbabwe where inflation had exceeded 100,000% some 14 years ago. If that were the case in the Philippines, a sack of premium rice available at P4,000 would cost P4,000,000 a year later. If the current minimum wage of P575 a day for non-agricultural workers is indexed to inflation, employers should be prepared to pay P575,000 or 1,000 times more.

No wonder, the Reserve Bank of Zimbabwe had to impose an expiration date for the old trillion-dollar notes because they were losing value faster than they could be printed. At some point, a hundred trillion dollar note exchanged for only 40 US cents. The use of the Zimbabwean dollar was ultimately abandoned in 2009.

Zimbabwe was ill advised to have implemented a kind of land reform that involved the confiscation of properties, and the destruction of dairy farms, piggeries, and cattle farms. Food became scarce and inflation reached to the stars. Malnutrition and poverty became commonplace. The people barely survived hyperinflation, their human right to a decent life mangled.

A long view of inflation is useful to be able to connect several dots. People would always wonder how come ordinary people in the US or some European countries could afford to buy what the wealthy among them normally buy. If we consult WorldData.info, we see a very interesting insight from the US and the Philippines’ inflation record for the last 61 years, or from 1960 to 2021 with 1959 as the base.

Inflation in the US was almost steady during this long period of over half a century. With the balance of payments and debt crises in the 1980s in the Philippines, inflation started galloping. With a fixed base year, inflation accumulated, assaulting the Filipinos’ purchasing power and subsequently, quality of life.

This long view should explain the central bank’s fixation against inflation, or for that matter, modern central banking’s focus on inflation control, the need for insulating the central bank from politics, its non-negotiable policy independence and autonomy. Tampering with its finances would compromise its ability to promote price stability. Nobody would ever relish seeing an expiration date on the Philippine peso stamped alongside the signature of the Bangko Sentral ng Pilipinas (BSP) governor and the president of the Republic.

We can also appreciate the human rights dimension of inflation if we are conscious of its dynamics.

Exchange rate movements can drive domestic inflation. While the so-called exchange rate pass-through has declined since the BSP embraced flexible inflation targeting in 2002, when the peso depreciates sharply within a short period, that could contribute a great deal to price movements. A weak peso inflates the domestic cost of imported oil as well as raw materials and intermediate products for further domestic processing.

If we are competitive and can sell our products and services to the global markets, we can have more growth and higher employment. External competitiveness, as proxied by the peso’s real effective exchange rate, is determined both by the exchange rate and inflation. If we succeed in keeping inflation stable, the peso, all other things being equal, can be more stable, too. A successful management of inflation can therefore help growth and employment and therefore, provide a better quality of life for our people.

Policy trade-off is another interesting aspect of inflation. In the Philippines, the so-called Philips curve, which shows some trade-off between output and inflation, has shown some flattening since 2011. This means that when inflation has breached the target, bringing it down would entail a bigger sacrifice of output. That should put a premium on preemptive monetary policy that would prevent inflation from adhering to higher levels. Inflation then could be very stubborn, and therefore costly to the economy. We should therefore be cautioned against waiting for second-round effects when red flags have already been raised by petitions for wage and power rate adjustments.

Supply-side considerations are equally important. Food shortages because of extreme weather conditions, incompetent land management, unscrupulous importers, hoarders, and smugglers, and poor infrastructure have made even the most basic goods and services inaccessible to ordinary Filipinos. This is where the monetary authorities are coming from when they also seek the support of other public institutions to undertake end-to-end interventions, from production to distribution and marketing, ground monitoring and assessment of supply conditions. Firming up food security as public policy will go a long way in reining in inflation.

Ensuring inflation expectations are well anchored is critical in managing inflation. Expectations can be measured through surveys and inflation-related financial instruments, and they can be influenced by market news as well as central bank actions and forward guidance. Recent BSP research indicates households are now more forward-looking, they have become more sensitive to future trends of inflation. More than ever, responsible inflation forecasts are critical because they can be self-fulfilling.

Why then is inflation unjust?

For the first two months of 2023, for instance, inflation averaged 8.6%. This means that relative to last year, households on average have to spend 8.6% more. If they spent P500 a day last year, they will have to add an additional P43 this year. Food alone is 10.8% more expensive this year. If households allocated 60% for food out of their minimum wage of, say, P570 a day or P342, they would need P36.94 more each day for food.

For those in the bottom 30% of all income households in the Philippines, the inflation rate is much higher, the challenge to their tenacity and resilience more formidable. To keep within their budget, they have to eat less, or buy cheaper substitutes — if there are any.

No wonder, the current daily minimum wage of non-agricultural workers of P570 is now worth only P482.30. This is the real minimum wage today.

On a broader scale, inflation drives away investors, undermines our external competitiveness, and pulls back growth and employment.

While poverty has many fathers, inflation must be one of them. And poverty incidence has deteriorated, at least between 2018 and 2021. Per capita poverty and food thresholds have risen a great deal. These increasing thresholds mean that households have to spend much more to be able to achieve the minimum spending to meet the basic food and non-food requirements of a decent life.

We ended our presentation to the young people with a quote from Sam Tanenhaus: “In literature and in life, we ultimately pursue, not conclusions but beginnings.” Realizing that inflation can really be unjust should inspire us to wage a more spirited battle against it.


Diwa C. Guinigundo is the former deputy governor for the Monetary and Economics Sector, the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was alternate executive director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.