As the administration of President Rodrigo Duterte nears the two-year mark, his once-unyielding popularity seems to be undergoing its most severe challenge yet. A recent Pulse Asia survey revealed that nearly all Filipinos—a massive 98 percent—feel that the price of basic commodities has gone up since January, signifying a broad concern over whether or not they would be able to cope with the surge.
And for good reason. The first three months of 2018 saw the inflation rate shoot up steadily from 3.4 percent in January to 3.8 percent and 4.3 percent in February and March, respectively. The latter is the highest recorded monthly figure since 2013.
It is little surprise then that other metrics are following suit. Consumer confidence, per the latest Bangko Sentral Consumer Expectations Survey, has likewise weakened in the same period, dropping to 1.7 percent in the first quarter from 9.5 percent in the previous one. As expected, the higher prices of goods, in addition to perennially low income and a rise in household expenses, are the main factors to explain the “less optimistic” sentiments.
The Filipino consumer is by and large apprehensive going forward. In the same survey, more respondents expect their expenditures on basic goods and services to go up, including those on electricity, food, non-alcoholic and alcoholic beverages, fuel, water, and transportation.
To observers and consumers alike, there is one clear culprit. The passage of the Tax Reform for Acceleration and Inclusion law last year—a banner legislation and considered a landmark achievement of the Duterte government—had many sectors anxious, unappeased by the many assurances from the administration’s economic managers that the law’s effect on inflation would be minimal and that 99 percent of Filipino households would benefit from tax cuts.
Mere months into TRAIN’s rampaging journey, their fears seem to be not only founded. The situation appears to be even worse than initially feared. National Economic and Development Authority Director Ernesto Pernia was quick to downplay the tax law’s impact—just 0.7 of the inflation at most is attributable to it, according to his agency’s calculations—but the perception seems unabated, especially among the lower income and working-class segments.
Recently, Pernia tried to assure the public that the uptick in commodity prices was going to be “short-lived and should taper off over the coming months,” but even he conceded that the public needed to “remain vigilant against emerging price pressures and to implement mitigating measures immediately.”
For good reason. The negative perception cuts across geographic area and socioeconomic groups. In fact, only 1 percent of Filipinos appear to be not bothered by the increase in the prices of basic commodities.
It doesn’t help that there are other factors that exacerbate the situation, from the increase in the global prices of crude oil and the depreciation of the peso. A recent Social Weather Stations survey also revealed that the “joblessness rate” has increased from 15.7 percent in December of 2017 to 23.9 percent in the first quarter of 2018. This translates to an increase in the estimated number of jobless adults from 7.2 million in December 2017 to 10.9 million in March 2018.
While TRAIN is also envisioned to create jobs and ease poverty via helping bankroll the government’s infrastructure program and other social services initiatives, this kind of impact is not expected to materialize for another five years or so. And since the Filipino consumer is already crying over the current price pinch, the situation demands a more urgent response, the gravity of TRAIN’s effect on inflation notwithstanding.
Unfortunately, faster than expected inflation can trigger other aspects of the economy, which could make matters worse for Filipinos. BSP announced that it expects inflation to settle close to the high end of the target range of 3.8 percent for the year. BSP Deputy Governor Diwa Guinigundo this week said the central bank would be ready to raise interest rates if needed.
He explained: “If inflation is higher than 4.3 percent, then it means something. If it’s lower, then we have to reassess all the numbers. We will keep on monitoring those numbers. We have to look at it [from] a medium-term perspective. What’s next in 2019?”
This can help ease inflation as consumers tend to save more when interest rates are raised to take advantage of higher returns, reducing disposable income.
Whatever the situation, one thing is clear. Part of the selling points of TRAIN was relief for the ordinary folk. In the short term, not only is this not happening, they seem to be bearing the brunt of what was envisioned as truly progressive policy. For the Duterte administration, inflation appears to be the next battleground that may prove to be damaging political issue in next year’s mid-term elections. As with key government policy, a sense of urgency and responsiveness in executing mitigating programs that would ease the burden of ordinary consumers is key.
