Nine-year high Philippine inflation rate could hit OFWs’ pockets

Higher food prices, which make up more than a third of the consumer price index, had a major contribution to inflationary pressures in August. (AFP)

• OFWs have benefitted from the peso’s weakness against the US dollar, but the gains might have been offset by the reduction of purchasing power
• Remittances from overseas Filipinos in June fell to their lowest levels in three months to $2.61 billion

DUBAI: Filipino expats might have to consider increasing the money they send home, to help their families keep up with the unabated rise in prices of basic consumer goods, which has diminished whatever benefits they gained from the recent favorable exchange rate, analysts say.
“The higher inflation reduced the purchasing power of Overseas Filipino Workers (OFWs) and their families, eroding whatever OFWs gained from the higher US dollar/peso exchange rate that increased the peso equivalent of their remittances about 4.5 percent year-on-year and about 7 percent since the start of 2018,” Michael L. Ricafort, head of the economics and industry research division at Rizal Commercial Banking Corporation told Arab News.
OFWs have benefitted from the peso’s weakness against the US dollar, but the gains might have been offset by the reduction of purchasing power due to elevated inflation, Guian Angelo S. Dumalagan, market analyst at Land Bank of the Philippines, said.
“Using the inflation in August of 6.4 percent, OFWs and their families might just be better off by just 0.6 percent,” Dumalagan told Arab News.
The government on Wednesday reported that headline inflation rose by 6.4 percent year-on-year in August – the highest in nine years – from 5.7 percent a month earlier and 2.6 percent in August last year. The August inflation rate also exceeded the 5.9 percent forecast given by Philippine monetary and finance authorities.
Remittances from overseas Filipinos in June meanwhile fell to their lowest levels in three months to $2.61 billion, 5 percent down from $2.75 billion of the same month last year. Monetary authorities said the biggest declines in cash remittances were recorded in the United Arab Emirates, Saudi Arabia and Kuwait during the said period.
“An unfortunate confluence of cost-push factors continues to drive consumer price inflation in August beyond the acceptable target range. Much of it has to do with food supply shocks, rice in particular. These warrant more decisive non-monetary measures to fully address,” Nestor Espenilla, Jr, Governor of the Bangko Sentral ng Pilipinas, said.
“We also need to consider external developments and US Fed actions to the extent these exert undue pressure on the peso. Under the circumstances, we will weigh the need for further monetary policy action,” the central bank governor added.
Higher food prices, which make up more than a third of the consumer price index, had a major contribution to inflationary pressures in August. The retail prices of rice were up by at least 10 percent year-on-year, pushed by a shortage of cheaper rice in the market; corn prices were up by as much as 20 percent in some areas of the country; sugar prices rose as much as 20 percent since the start of the year.
“The government, particularly the Department of Agriculture, must act quickly and fervently with a sound judgment to ease the increasing prices of agricultural commodities which are the main drivers of inflation,” Socioeconomic Planning Secretary Ernesto M. Pernia said. “The NFA should fast-track the distribution of remaining inventories, alongside the completion of the government’s 250 thousand MT rice imports from Thailand and Vietnam in the last week of August to build its rice inventory, a necessary step to temper inflation.”
The National Food Authority is a government agency responsible for ensuring food security in the Philippines and the stability supply and price of rice, the country’s main staple. Aside from shipping in more rice, the government is also planning to import fish, particularly round scad, as some municipal waters impose fishing bans in their areas between October to February and allow fish stocks to be replenished.
The analysts are however hopeful that inflation levels might have peaked in August, and would begin to taper off by the end of the year.
“It is possible that the higher-than-expected inflation rate of 6.4 percent in August is already the peak and the inflation rate for the remaining months of 2018 could be slower and linger at or near 6 percent levels, before easing to between 4 percent and 5 percent in the early part of 2019,” Ricafort said, as the residual effect of the new tax law implemented in January eases.
“Efforts of government to address supply issues should eventually moderate price pressures. But the impact of second-round effects would still have to be reflected in production costs and retail prices,” ING Bank senior economist Joey Cuyegkeng said.
Former president and current House of Representatives Speaker Gloria Macapagal Arroyo, who is also an economist, also said the high inflation rate should not be a cause for alarm as “the government was doing what it can do to address it.”
“Hopefully this will be the peak. Conceivably even a sharp increase can be resolved, but we have to analyze what is driving it and therefore address what is driving it,” Arroyo added.