• Why 4.4% inflation feels worse than it sounds


    And why blaming it on the truck ban is a bit dishonest
    Answering this question has become a monthly exercise for me: “If the inflation rate is only [whatever unbelievably low figure the government announced this month], then why are we paying so much more for the things we buy?”

    Last month’s headline inflation rate was 4.4 percent, a slight decrease from 4.5 in May, which was the highest inflation has been since November 2011 (when it was 4.7 percent). And yet the prices of most goods seem to be climbing much faster than that; the prices of rice and garlic have been actual news in the past few weeks, but other prices— milk, meat, fish, transportation, school supplies for the kids, even the price of a chicken dinner at KFC—have all been moving steadily upward as well, at a pace that one can readily see exceeds the ‘official’ 4.4 percent inflation rate.

    The confusion among the public is completely understandable, because this is a situation in which both perceptions are correct. The overall headline inflation rate is, in fact, just 4.4 percent, while at the same time the prices of certain goods – most particularly food – are inflating at a much faster rate. Of the 11 categories of prices in the ‘basket’ of goods and services that are continuously monitored to generate consumer price and inflation data, the two that are given the largest weights are “food and non-alcoholic beverages,” which accounts for 38.98 percent of the price index, and “housing, water, electricity, gas and other fuels,” which accounts for 22.46 percent. The pricing categories are further divided between the National Capital Region (NCR) and “areas outside the NCR,” and the individual weights of each category are proportionally divided between the two; thus, the 38.98 percent figure for food is split into a 6.78 share for the NCR and a 32.20 share for areas outside the NCR.

    In June, the food index for the entire country had an inflation rate of 7.36 percent; this is further broken down into specific items by the government (who do make the information available to the public, although they, perhaps understandably, do not put a lot of effort into drawing attention to it), some of which had shocking increases: Rice, 17 percent higher than it was a year ago; vegetables, 12.3 percent higher year-on-year; and meats, with a 5.1 percent annual increase. In the overall food index and in most of the individual commodities, the month-to-month and year-on-year increases in prices were higher in areas outside the NCR; because of the bigger weight given to these areas, this tended to drive the whole index up. It was only because prices in some other price categories, namely housing and fuels, recreation and culture, and alcoholic beverages and tobacco, had very small increases that the broad inflation rate was marginally less than it was in May.

    Since food is a daily expenditure for almost everyone, any shifts in prices are immediately noticeable. As to why those increases occur, that is a bit more complicated; perhaps if economic and business experts were not so focused on what they wished was the cause (for political or other ulterior motives), we might actually be finding answers to the problem of higher food prices.

    Truck ban not the problem
    Among the nine or ten knowledgeable people to whom I posed the question, “Why have food prices suddenly skyrocketed?” only one (who, interestingly enough, works for a freight forwarding company) did not cite “Manila’s truck ban” as the first or second reason for the increase in food prices, although he did agree it was causing huge problems in other areas.

    The decision to ban most trucks from Manila’s streets during daytime hours has been modified several times to try to loosen the bottleneck at the Port of Manila, and from its very beginning has exempted “perishable goods,” meaning almost all food shipments that pass through the port. Even though a sizeable volume of food destined for Metro Manila and the nearby provinces does enter through the Port of Manila, the majority of it still arrives by other routes, and in any event the truck ban should not affect food shipments, nor have a noticeable impact on food prices in parts of the country that do not rely on the Port of Manila as their main source of supply. If anything, food shipments should be moving more efficiently now, thanks to the slight reduction in traffic caused by the truck ban and restrictions on the volume of buses on Manila’s streets.

    Nevertheless, shipping costs for food have increased and contributed to higher food prices, not because of the truck ban, but because of profiteering among freight haulers. The problem stems from the port operators, the government, and the transport companies handling the truck ban very poorly – my contact in the freight forwarding business suggested it is intentional, as a way to create a crisis that will force the unpopular restrictions to be suspended entirely. Since the ratio of incoming cargo to outgoing shipments at Manila’s port is about three to one, the entire area is becoming clogged with empty containers; this reduces the space to offload arriving shipments, which, thanks to Customs’ agents annoyance with new Customs Commissioner John Sevilla’s efforts to clean up Customs processes, are taking two or three times longer to process than they did before. The huge backlog of freight waiting to leave the port means that hauling companies are now able to demand three to four times the previous rate. A few months ago, the going rate to pick up a container at the port and deliver it to a destination in Metro Manila or the nearby provinces was P7,000 to P8,000; now, the price is P25,000 to P28,000. Since freight haulers have been able to demand that for shipments originating at the port, they have taken the opportunity to raise their rates on every shipment, whether it comes from the port or not, and particularly on food shipments, because those are time-dependent and their consignees have little room to bargain for lower costs.

    Creating an artificial crisis through bad management seems to be a popular method of achieving self-serving objectives here. In the case of the truck ban, it’s particularly short-sighted; freight does not move much faster in gridlocked traffic than it does on an overcrowded pier. People who are being forced to pay more for their most basic needs, simply because greed prefers an unhelpful solution to an unnecessary problem, should be angry.



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    1 Comment

    1. Simon Ybarramendia on

      “Creating an artificial crisis through bad management seems to be a popular method of achieving self-serving objectives here. In the case of the truck ban, it’s particularly short-sighted;”

      This does not apply to the DAP. It was not based on self-serving objectives. It was done in good faith.