Rising Inflation Should Not Distract Us
Accelerating inflation is a major concern for many nations, including the Philippines. But it should not sidetrack our policymakers from pursuing a high-growth economy given the momentum achieved by the Philippines in previous quarters.
The Philippine inflation rate rose to 5.4 percent in May from 4.9 percent in April because of higher fuel and food prices, mainly caused by the Ukraine-Russia conflict. The May inflation rate by every measure can already be alarming. The Philippines, however, is not faring worse than the United States and some European countries. The May inflation rate approximates the 5.4 percent in Singapore in April and Korea’s 5.5 percent in May, and is much better than India’s 7.8 percent in April.
The local inflation rate, when compared with the US and some European nations, is definitely less troublesome. The US recorded 8.6 percent in May, while the European zone posted an average inflation rate of 8.1 percent in May. Germany registered 7.9 percent, Spain at 8.7 percent, Netherlands at 8.8 percent and the United Kingdom at 9 percent in April.
There is no short-term solution to rising fuel prices, unless the war between Ukraine and Russia abruptly ends and crude prices in the world market stabilize as a result of the cessation of hostilities. Or the government can do away with taxes imposed on petroleum products to temper the rise in the local pumps, but that will reduce the funds already earmarked for social services and the poorest of the poor.
The long-term solution to galloping pump prices, of course, is the shift to electric-powered vehicles. And I’m confident the incoming administration will take a hard look at this emerging industry in order to lessen the dependence of the local transportation sector on fossil-based fuels.
The Philippine inflation rate increased to 5.4 percent in May also because of rising food prices—notably meat, fish and vegetables. For an agricultural nation like the Philippines, it’s hard to believe that prices of these food items should accelerate. The Philippine Statistics Authority cited a shortage in domestic pork and fish supply as the major reason for higher food prices. If it’s a supply issue, I believe we can either remove the bottlenecks that disrupt the delivery of these food products or resort to temporary imports.
One item that caught my attention in the PSA inflation figures, though, is the price of corn. Corn inflation jumped to 24.4 percent in May due to high prices and limited global supply. The Russian invasion of Ukraine disrupted the supply chain of key commodities like wheat, corn and vegetable oil, and sent prices soaring. Corn is now being used as a substitute for wheat feeds, a major feedstock for the livestock sector.
We may see further increases in corn prices and those of meat in the coming months. The Philippines, per the report of the US Department of Agriculture, may import 750,000 metric tons of corn from 2022 to 2023 as supplement to feed wheat, from an earlier projection of 500,000 MT for the current market year.
It is easy to say that increased local corn production is the solution to the rising price of this commodity. But I have the confidence that our incoming agriculture secretary will revisit the government’s crop production program to ease the inflationary pressures on food.
The high inflation rate regime may stay for a while, depending on the resolution of the Ukraine-Russia conflict. Prices for sure will eventually go down as households adapt their spending patterns to the changing market environment. Our small entrepreneurs, too, will adjust to high prices. Reducing overhead expenses and inventory, and cutting marketing costs are some of the options to manage inflation. Investing in technology in this digital age is also one way of reducing the overhead costs.
The high inflation rate, however, should not distract the government from further reopening the economy. We have seen the positive economic results in the past few months when the state further eased mobility restrictions. The unemployment rate in April dropped to 5.7 percent, the lowest since the start of the pandemic.
The employment rate in April, per the PSA figures, rose to 94.3 percent, translating to about 45.63 million employed Filipinos and higher than 91.3 percent in April last year. In sum, the number of employed year-on-year increased by 2.36 million, from 43.27 million last year.
The Philippines, thus, has growth momentum on its side and should overcome the inflation menace.