The Philippine inflation rate has risen again. It accelerated to 6.1% in June 2022. This is higher than the 5.4% recorded in May 2022. And it is also the highest since October 2018.
Food, Transport, and the Philippine Inflation Rate
Food and transportation were the biggest contributors to the Philippine inflation rate. The food index grew by 6.0%. This means that it is 6.0% more expensive to buy food compared to last year. But what about the individual components? A kilo of rice is 2.0% more expensive. Meat is 8.1% more expensive. And vegetables are 14.4% costlier than last year.
The transport index rose by 17.1%. Operation of personal transport equipment is 53.5% more expensive now compared to last year. And this means that a jeepney driver must spend more than half as much to ply the roads. Obviously, fuel is a huge part of their costs. The index for electricity, gas, and other fuels also rose by 18.3%.
Educated Guesses for the Future
The Development Budget Coordination Committee (DBCC) recently increased adjusted its 2022 inflation rate assumption to 4.7%. They cited Russia’s invasion of Ukraine as the main factor. We should thus expect a long period of relatively-high inflation. However, we should remember that this is an educated guess. No one really knows for sure where inflation will go.
Inflation is a significant drag on economic growth. On one hand, it reduces the purchasing power of the peso. 1 peso is now worth only 0.87 centavos. This drastically reduces the spending power of the Filipino consumer. And this is more drastically felt by poor Filipinos, who spend 70% of their income on food.
On the other hand, inflation can also induce increases in interest rate. The BSP recently raised the interest rate of its overnight reverse repurchase facility to 2.25%. Other banks may follow. This is perilous for businesses which are heavily leveraged. For example, the real estate sector typically relies heavily on debt.