Think positive

"Most of us welcome 2019 with cautious hope."



By many accounts 2018 was not the most pleasant year for the Filipino consumer. After being promised a “Christmas gift” in the form of the Tax Reform for Acceleration and Inclusion Law late in 2017, the reverse came true. Inflation since became a runaway monster, nearly impossible to tame. The government’s economic managers were quick to belittle the role of TRAIN in the fiasco, but even considering the other factors the administration’s banner tax reform program no doubt made things worse, especially for the poorest, who didn’t benefit from the income tax cuts.

The new year seems to come with some reprieve in the horizon. The last two months of the year saw inflation easing all the way to 5.1 percent, the lowest since May and well below the 6.7 percent in September, the highest in nearly a decade. That brings the 2018 average to 5.2 percent, which is at the lower end of the Bangko Sentral ng Pilipinas’ full-year forecast but still considerably higher than the 2.9 percent posted a year earlier.

As is often the case, what helped inflation toward the end of 2018 was the slowdown in the price increases in food and alcoholic beverages as well as transport costs. Problems in supply and production, of rice, fish, meat, and vegetables, had been blamed for the surge for much of 2018. Part of the culprit appears to be the perennial issues beleaguering the agriculture sector, such as the onslaught of typhoons and poor state support.

Department of Agriculture Secretary Manny Piñol himself admitted that it was hard year for the sector, which grew by a measly 1 percent. For what it’s worth, the record inflation became instrumental in pushing lawmakers to finally approve the government’s long-wished-for Rice Tariffication Bill, which it said will lower the price of the Filipino staple by as much as P7 per kilo. Some analysts, however, feel that the 35-percent tariff rate is still too high to make a substantial dent in rice prices.

Oil prices, on the other hand, were susceptible as always to the volatility of the global market. The year 2018 was particularly volatile—crude prices opened the year at $66 a barrel to a peak of $79 per barrel in October before closing at $56.5 by year-end on oversupply, lukewarm global growth sentiments, and the ongoing trade war between the US and China. In response, the government has called for a provisional jeepney fare rollback in some regions and cancelled plans to suspend the implementation of the next tranche of the tax reform law.

These two developments may mean a kinder 2019 for the Filipino consumer but not for the poorest of the poor households that routinely suffer from out-of-control commodity prices. For instance, during the tumultuous third quarter of 2018, inflation for the bottom 30-percent income-wise peaked at 8.3 percent. With no relief courtesy of higher take-home pays, these households bore the brunt of TRAIN’s impact.

A couple of weeks into 2019, however, it seems that the relief may be short-lived. The latest round of fuel price hikes by at least P2 had been directly attributed to the implementation of the second tranche of TRAIN, which imposed higher fuel excise taxes. The Department of Energy announced that the total price increase for gasoline, kerosene, diesel, and LPG are P10.08, P3.38, P5.04, and P2.24, respectively. And by its nature, any movement in oil prices can trigger a domino effect on the prices of other commodities and therefore impact other aspects of the economy.

Does this bode ill for the Filipino consumer in 2019? Yes and no, it seems. On the one hand, inflation has been part of the Filipino consumer’s economic life, something that the resilient Filipino has in many ways learned to deal with. On the other hand, inflation as part of a broader economic reality is also political as it is in this case a clear byproduct of a policy intervention.

In the context of a developing economy such as the Philippines, inflation, as linked with increased taxation, can become bearable if it occurs alongside two things: Employment and public services. Adequate employment provides households with necessary purchasing power, while accessible social services can help the most vulnerable in society cope with difficult circumstances. From a macro-economic perspective, these can guarantee against a downturn in economic activity that runaway inflation can cause.

For instance, independent think tank Ibon noted that the first two full years of the Duterte administration actually saw the lowest level of job creation among all administrations after EDSA, a symptom of a far less optimistic economic outlook. The average annual job creation for 2017 and 2018 of 81,000 is well below the annual average recorded under Corazon Aquino (810,000), Fidel Ramos (489,000), Joseph Estrada (842,000), Gloria Macapagal Arroyo (764,000), and Benigno Aquino III (827,000). Inflation without enough job creation will spell doom for any economic system.

This is important because while inflation has indeed subsided, it remains stubbornly high compared to pre-TRAIN levels. For the ordinary Filipino consumer, this goes beyond figures on a news report. They see it in their trips to the market or the grocery, when they gas up or take a jeepney to work or school. After a challenging year (and approaching the halfway point of the Duterte presidency), most welcome 2019 with cautious hope.

Some forecasts predict a return to a high-growth, low-inflation regime this year, while others see remnants of the record inflation to continue to dampen consumption and investment momentum. The World Bank has slightly lowered its growth forecast to 6.5 percent from 6.7 percent for 2019, citing tempered investment growth and weak global trade.

It’s the first quarter of the year that will test the mettle of Duterte’s economic managers. For its part, Malacañang concedes that much work needs to be done as far as social justice and poverty reduction are concerned. And with the midterm polls coming up—a referendum, as always, for the sitting president—the stakes are even higher.

Topics: Tax Reform for Acceleration and Inclusion Law , Rodrigo Duterte , Manny Piñol , Bangko Sentral ng Pilipinas
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