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Inflation for bottom-30% income bracket falls further in Aug.

inflation for bottom 30 income bracket falls further in aug 816x445 - Inflation for bottom-30% income bracket falls further in Aug.

By Lourdes O. Pilar, Researcher

INFLATION as experienced by low-income families, cooled further in August to its slowest rise in nearly three years, according to the Philippine Statistics Authority (PSA).

The inflation rate for households in the bottom 30% of the income tables was 2.3% last month, well below the 3.1% in July and 8.3% in August 2018.

The latest reading for bottom-30% inflation was the lowest in 32 months. The medium-term low point was 2.1% in December 2016.

Year-to-date, the inflation for this income segment averaged 4.2%, lower than the 6.4% average a year earlier.

This compares with 1.7% headline inflation experienced by the average household in August, less than the 2.4% in July and 6.4% in August 2018. August’s reading matched the 1.7% logged in September 2016 and was the lowest in three years. The medium-term low is 1.3% posted in August 2016.

The PSA uses the 2012 base year in computing the headline consumer price index (CPI), while for the bottom 30% income households’ CPI, it uses 2000 prices.

Aside from the two measures having different base years, the CPI for the bottom 30% income segment of the population reconfigures the model basket of goods, assigning heavier weight to food, beverage and tobacco (FBT), as well as other necessities more representative of the spending patterns of the poor.

Inflation in the FBT index was 2.3% in August, lower than the 3.2% in July.

Inflation was steady in services at 3.3% and housing and repairs at 4.5%. Inflation fell for clothing to 2.8% from 2.9%; fuel, light and water to 0.6% from 1.2%; and “miscellaneous” items to 2.3% from 2.4%

The food-alone index eased to 1.8% from 2.7% previously.

Food accounts for 35.5% of the theoretical basket of goods used by the average household compared to a poor household’s 75%. Similarly, rice, which is part of the food index, comprises 9.6% of an average household’s consumer price index basket compared to 23% for a poor household.

PSA noted that indices for rice, corn and cereals each registered declines of 1.9% during the month. Increases were noted for cereal preparations (3.3% in August from 3.2% in July) and eggs (3.1% from 2.8%).

Meanwhile, weaker readings were recorded in the indices of dairy products (to 2.5% from 2.8%); fish (to 7% from 7.8%); fruits and vegetables (to 3.8% from 6.3%); meat (to 1.3% from 1.7%); and miscellaneous foods (to 2.9% from 3.2%).

UnionBank of the Philippines, Inc. (UnionBank) chief economist Ruben Carlo O. Asuncion said in an e-mail that food and fuel prices have been the “driver” for the slowdown.

“The decline in annual increases of food and fuel prices have been the driver. Global oil prices have been on the decline and expectations are for continuing decrease through 2021,” said Mr. Asuncion, adding that the Rice Tariffication Law has had an impact on the price of domestically-grown rice.

The law, which was signed on Feb. 14, liberalized imports which now have to pay a tariff of 35% on shipments of Southeast Asian grain, and has effectively reduced retail prices of the staple.

Rizal Commercial Banking Corp. (RCBC) economist Michael L. Ricafort said in a separate e-mail that inflation for the bottom 30% was the “slowest” in more than 2.5 years.

“It may have been largely due to lower prices of rice, food, and basic commodities compared to a year ago amid the effects of the Rice Tariffication Law that increased the country’s rice imports as well as the local supply of rice, thereby also leading to the sharp year-on-year decline in palay prices as well as some decline in the retail prices of milled rice,” he said.

“Lower prices of food and agricultural products compared to a year ago partly due to the government’s non-monetary measures since late last year in an effort to increase local supply and lower the prices of rice, fish, corn, and other food items in an effort to lower headline inflation also contributed to the sharp slowdown in inflation for the poorest households, since a larger part of their incomes goes to food and other basic necessities compared to other households with much higher incomes,” Mr. Ricafort added.

Inflation experienced by poor households in the National Capital declined to 0.1% in August from 0.9% recorded in July, while those living outside of Metro Manila experienced inflation of 2.4%, down from 3.1%.

RCBC’s Mr. Ricafort expects inflation for the bottom 30% to fall further in the coming months, adding that it “would remain relatively lower largely due higher base/denominator effects.”

“This is seen to further decline and settle within the headline inflation target of the government at 2.0% to 4.0%,” UnionBank’s Mr. Asuncion said.

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