ANALYSIS: Even living simply now costs a lot more

Jose Galang -- Your Business

Posted at Feb 06 2018 05:09 PM

No thanks to the newly imposed bundle of taxes on the Filipino people, the cost of food and household utilities—the two largest expense items on family budgets—could now gobble up more than P0.65 of every P1.00 that an average family earns.

Food and alcoholic beverages became costlier by 4.5 percent on average in January, according to the Philippine Statistics Authority’s latest inflation report. If you live in Metro Manila, the rate of increase was a faster 5.2 percent compared to that experienced by residents outside the provinces.

Expenses related to housing, water, electricity, gas and other fuels jumped by 4.2 percent last month, significantly faster than the meager 0.2 percent increase in the same month last year, the same government statistics show.

The PSA report says overall inflation was 4.0 percent in January, a big increase compared to just 2.7 percent in the same month last year. Those living in Metro Manila saw a much faster 5.4 percent rate of price increases, a brisk pace last seen in late 2014.

Top expense items

These numbers are averages. A closer look at the numbers shows that the price of rice (which is the dominant food item of the Filipino diet), corn, bread and other cereal preparations, meat, fish, milk, cheese and eggs, oils and fats, fruits and vegetables all registered higher rates of increases in January compared to last year.

Just staying at home and trying to live simply indeed costs a bit more, a result of the wave of mark-ups in most products sold on the market affected in varying degrees by the new sales taxes. How these price levels will be offset by the cuts in personal income taxes of wage earners remains to be seen, although some analysts are already saying that the higher take-home pay won’t be enough.

Eating out and commuting to work, activities that account for about P0.20 of every P1.00 spent by the average Filipino family, are also among the fast-rising items. And with the prospect of further increases in petroleum products and business costs, expect these expense items to go up some more in the coming months. Steeper increases could be felt by Metro Manila residents.

The recent wave of price increase can be attributed mainly to the added burden of excise taxes that individuals and businesses now shoulder. If the Duterte economic managers’ Pollyannaish view that wage earners’ supposedly fatter take-home pay materializes, then that could only mean an added push to price increases. Economists often remind us that where there is a bigger supply of money chasing goods, prices are bound to go up.

There is another emerging concern among finance analysts that could impact on inflation: the possibility that interest rates would go up soon. This is based on expectations that the US monetary authority, the Fed, is planning a series of rate increases this year, after keeping them at historically low levels in past years.

When the US central bank does increase its rates, ripples will be felt across the globe. Developing countries like the Philippines will be among those affected, and one option to cope with that is for the local central bank to also raise its own rates. That will trigger adjustments in the cost of using bank credits and businesses will experience higher operating costs that will be recovered through increases in the prices of goods and services they produce.

Market slump

These fears are now being manifested in big selloffs of corporate shares on stock markets worldwide. The Philippine Stock Exchange has seen its key stock price indicators plunging in recent days, with trade volumes bloated by investors unloading holdings.

Still, the local stock market index, mirroring sentiments in most bourses worldwide, has recently been hitting record highs. Some analysts say the decline this week represents more of a market correction from those highs rather than a sign of any crisis.

A longer term effect of the expected US rate increases will be the added cost of repaying Philippine government debts, some of them incurred only in the past few months. At end-December 2017, the national government had total outstanding debt of P6.65 trillion, an increase of nearly 9.3 percent from the year-ago amount.

Of the total, a third, or P2.21 trillion, was owed to creditors abroad. This part of the debt burden could be vulnerable to any further decline in the peso exchange rate, which this week has weakened to nearly P51.55 against the US dollar.

Pressure for increased rates on the government’s domestic borrowings, on the other hand, has grown in recent weeks, with the national treasury having to reject bid offers for Treasury bills. This pressure, according to some analysts, is not likely to go away very soon.