Filipinos feeling pain of sharp price hikes

Filipino workers carrying sacks of rice into a store in Quezon City. The consumer price spike began at the start of the year following tax increases on fuel, sugary drinks and cigarettes - then swiftly moved to rice.
Filipino workers carrying sacks of rice into a store in Quezon City. The consumer price spike began at the start of the year following tax increases on fuel, sugary drinks and cigarettes - then swiftly moved to rice.PHOTO: EPA-EFE

Duterte rushing to fix problem as poll shows soaring costs may take toll on his popularity

MANILA • As prices of everything from oil to rice soar in the Philippines, Ms Maria De Guzman has scrambled to adjust. Her food bill has jumped 60 per cent over the last year and now represents about half of monthly living expenses, prompting her family to scrimp on movies and even drive their car less.

"We don't go out any more," said the 32-year-old university teacher in Manila. "These are things that we want to do, but we cannot. Even if it's pay day, you don't have money. It's already spent or budgeted."

Such financial pressure is being felt broadly among Filipinos, and creating political headaches for President Rodrigo Duterte.

The Philippines is now home to the fastest inflation rate in Asia, which according to economists' forecast accelerated to 6.8 per cent last month after a super typhoon damaged crops and oil prices rose.

If so, that would be the fastest pace since 2009, adding pressure on the central bank to keep raising interest rates. Policymakers forecast annual inflation will exceed a target of 2 per cent to 4 per cent until next year.

"Strong action is what Bangko Sentral ng Pilipinas needs, to shore up investors' confidence," said economist Jiaxin Lu at Continuum Economics in Singapore, referring to the central bank of the Philippines. "We continue to see more rate hikes. Rate hikes alone, however, are not likely to resolve the inflation issue, and other non-monetary measures that deal with supply-side constraints are also crucial."

The consumer price spike started at the beginning of the year following tax increases on fuel, sugary drinks and cigarettes - then swiftly moved to rice, the nation's staple food, owing to supply shortages.

On top of that, a more than 8 per cent slump in the currency this year is adding to the inflationary pressure. The country imports almost all of its oil, alongside food products such as rice and corn.

Consumers are cutting back on purchases of non-essential items, switching to cheaper products and changing routines.

A consumer sentiment index contracted for the first time in more than two years, a worrying signal in a country where private consumption makes up about 70 per cent of gross domestic product.

While the Philippines' economy is still among the most rapidly expanding in the world, the outlook is more uncertain. The Asian Development Bank last week downgraded the nation's 2018 growth forecast to 6.4 per cent from 6.8 per cent.

That means more austerity for middle-class consumers. Ms Rose Urquico, 32, who used to dine out as often as five times a week, is staying more at home and eating home-cooked meals. She also gave up yoga classes.

"I'm tightening my belt, and I'm trying to scrape savings together," she said. "More of my money now goes to food, rent and other expenses that are necessary."

Some are even turning to growing their own food, like Ms Czeriza Vigilia, a journalist who started a vegetable garden at home with string beans, tomatoes and chillies among her crops.

The central bank, which has faced criticism for being too slow to act, has delivered 150 basis points of interest-rate increases since May.

But there are signs that the inflationary pressure is worsening, as wages are set to rise this month. The government has approved higher water rates as well as fuel surcharges for airlines.

President Duterte is rushing to fix the problem as a recent opinion poll showed rising prices may be taking a toll on his popularity. The government is putting in place various measures, from police checks on overpricing to easier rules for food imports such as rice and sugar to boost domestic supply.

"People have been asking us to impose price controls but we don't believe in that kind of approach," Finance Secretary Carlos Dominguez said yesterday. "If you impose price controls, the items will just disappear from the market. So we're addressing it by increasing supply."

The Philippines is scheduled to hold mid-term elections next year, and inflation is set to become a key campaign theme.

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A version of this article appeared in the print edition of The Straits Times on October 05, 2018, with the headline 'Filipinos feeling pain of sharp price hikes'. Print Edition | Subscribe