FILIPINO consumers just a few months ago were in no mood to spend because of rising oil and food prices. Economic Planning Secretary Ernesto Pernia was disturbed to learn about the slowdown in household consumption during the third quarter of the year, particularly on food and other basic products, because the pattern could further slow the economic growth.
Household consumption in the third quarter, according to Philippine Statistics Authority data, grew just 5.2 percent, the slowest since the 5-percent rise in the third quarter of 2014. Mr. Pernia was understandably concerned about the low confidence of consumers to spend amid the galloping oil prices in the world market, especially in October, and the spike in the Philippine inflation rate to a nine-year high of 6.7 percent in the same month.
(The Philippine Statistics Authority last week reported that the inflation rate in November 2018 significantly dropped to a four-month low of 6 percent from a nine-year high of 6.7 percent a month ago, mainly due to the slower increases in food and fuel prices.)
Consumer confidence is a critical economic indicator. It measures the degree of optimism that consumers perceive about the direction of the economy and their personal financial situation. Consumers buy more when their confidence on the future of the economy is high, and purchase less and save more when their confidence is low amid uncertainties.
It is the duty of the government to restore consumer confidence, and one way of doing that is to tame prices and address the immediate factors contributing to a high inflation. The Duterte administration exactly did that when the President ordered the importation of more rice to provide a short-term solution to the immediate problem.
The recent passage of the Rice Tariffication bill by the bicameral conference committee of the Senate and the House of Representatives is another step in the right direction because it will mean more affordable food on the dining table of Filipino consumers.
The measure will remove the monopoly of state-run National Food Authority on food supply. And with the lifting of quantitative restriction on imported rice, inexpensive rice from other countries is expected to easily reach the domestic market.
Financial markets, meanwhile, are stabilizing. Oil prices in the world market have fallen 20 percent from their high in October. The local stock market has recovered its early losses, with the Philippine Stock Exchange Index safely above 7,000 points. The peso, too, has strengthened against the US dollar to around P52.60 from the P54 level in September.
I think that with the financial markets settling down and exhibiting a semblance of stability, consumer confidence will bounce back. The inflation rate just dropped in November largely as a result of normalizing rice prices and the series of oil price rollbacks.
Robust consumer spending, I believe, will return ahead of the Christmas and New Year holidays because of fewer uncertainties. The reduced prices of rice and gasoline products are giving consumers enough reasons to buy more during this holiday season. They feel that they have more spending power now, unlike in the previous months when prices of many basic goods were rising.
The Filipino consumers can have something to look forward to in the coming months. The Finance Department correctly estimated the inflation rate slowed down in November from a nine-year high of 6.7 percent in October. Rice and vegetable prices are declining, although the price of meat is increasing because of the holiday season.
The Bangko Sentral ng Pilipinas, for its part, is attributing the lower inflation “to the sharp decline in petroleum prices, the normalization of supply conditions in rice and other agricultural commodities, and the peso appreciation.”
The full impact of the Rice Tariffication bill is expected to be felt next year, but the administrative measures taken by President Duterte when he ordered the importation of more rice is starting to pay off. Food prices are now steady with the arrival of rice shipments from Vietnam, while pump prices of petroleum products are decreasing significantly.
***
This piece first came out in Business Mirror on Dec. 11, 2018 under the column “The Entrepreneur.” For comments/feedback e-mail to: mbv.secretariat@gmail.com or visitwww.mannyvillar.com.ph./PN
