Inflation impact on the poor eases further in July — PSA

By Lourdes O. Pilar
Researcher

INFLATION, as experienced by low-income families, softened at its slowest pace in 23 months in July, according to the Philippine Statistics Authority.

The inflation rate for the country’s bottom 30% income households clocked in at 3.1% in July, slower than the year-on-year overall increases of 4% in June and 7.6% in July 2018. The latest reading for the bottom 30% inflation marked the slowest pace in 23 months or since the three-percent rate in August 2017.

Year to date, the inflation for this income segment averaged 4.5%, slower than the 6.1% average in the seven comparable months last year.

That compared to a 2.4% headline inflation experienced by the average household in July, which was the slowest in 31 months or since December 2016’s 2.2%, even as the consumer price index (CPI) used in measuring headline inflation uses 2012 prices compared to the CPI for the bottom 30% income households, which uses 2000 prices.

Aside from the two measures having different base years, the CPI for the bottom 30% income segment of the population reconfigures the model basket of goods, assigning heavier weight on food, beverage and tobacco (FBT), as well as other necessities so as to represent the spending patterns of the poor.

Inflation in the FBT index was at 3.2% in July, slower than the 4.3% in June.

A smaller annual increase was observed in fuel, light and water to 1.2% from the previous 2%. At the same time, slowdowns were logged in clothing at 2.9% from 3.3%; housing and repairs at 4.5% from 4.2%; services at 3.3% from 3.7%; and “miscellaneous” items at 2.4% from 2.5%.

“The slowdown in annual increases in food items, particularly, rice has largely contributed to this decline. In addition, the lower average prices of fuel prices and utilities costs have together influenced the decline in general prices,” said UnionBank of the Philippines, Inc. (UnionBank) chief economist Ruben Carlo O. Asuncion in an e-mail, adding that rice prices contributed negatively to inflation in the last three months.

“This does not include other food items important to the bottom 30% of the population, such as basic food items other than rice. Note that the rice tariffication law is critical to the slowdown in rice prices.”

Rizal Commercial Banking Corp. (RCBC) economist Michael L. Ricafort also cited slower increases in prices of food: “The onset of the rainy season, after the mild El Niño drought in the summer months, also helped in easing the prices of some agriculture/food prices,” Mr. Ricafort said in a separate e-mail. “Lower oil prices and stronger peso exchange rate also partly contributed to [the] slower increase in the food price index.”

The law signed on Feb. 14 that replaced quantitative restrictions on rice with regular tariffs and liberalized importation had slashed retail prices of the staple.

The food-alone index eased to 2.7% from 3.9% previously. In particular, the inflation rate for rice registered a 0.4% decline, a turnaround from its 0.9% year-on-year inflation rate the previous month.

Food accounts for 35.5% of the theoretical basket of goods used by the average household compared to a poor household’s 75%. Similarly, rice, which is part of the food index, comprise 9.6% of an average household’s CPI basket compared to 23% for a poor household.

Inflation experienced by poor households in the National Capital Region was recorded at 0.9% in July, slower than the 1.6% recorded in June. Similarly, those living outside of Metro Manila saw a slower inflation rate at 3.1% from 4.1%.

“The decline in annual increases of price levels is expected to continue [in the] next months,” UnionBank’s Mr. Asuncion said, adding that price slowdowns in rice and other basic food items in the next few months are “highly likely.”

RCBC’s Mr. Ricafort shared this outlook: “Inflation for the bottom 30% of households could continue to ease in the coming month, in line with the easing trend in the headline inflation, largely due to the continued easing of the prices of rice… and some food items with the onset of the rainy season…” he said.

“Higher base/denominator effects a year ago would also mathematically lead to slower inflation for both headline inflation as well as the inflation for the bottom 30% of households…”