By: John Carlo Tria
OUR recent rice supply crisis of 2018 already taught us bitter lessons. That a slight uptick in retail rice prices pushes inflation up.
Average retail prices rose by about ten pesos per kilo, pushing inflation up to about 6%.
Thus, last week’s inflation drop to about 1.7% was prompted by the reduction in retail rice prices.
This will have a direct impact on the 20 million or so poor Filipinos (21% poor), a majority of which now live in cities and do not engage in planting any food, much less rice. They are direct consumers of the precious commodity.
For reference, estimates by farmers groups claim 2.9 million rice farmers in all. They also buy rice.
Lower rice prices will also benefit a larger number of families. This is because the majority of Filipinos, the poor especially, still allocate 50% ( roughly half of daily total expenses, if I am not mistaken) of their food expenses to buying rice to eat.
They will be able to afford to buy more food to meet their daily needs.
But low inflation’s real effect is not on politics or perception alone. More importantly, it is on the capacity of you and me to purchase goods and services.
Lower inflation may not increase total income, since salaries will remain the same, but increases our purchasing power, allowing us, and millions of others, to buy more goods and services in the economy, driving consumption, strengthening demand and therefore, creating more opportunity.
Lower inflation also reduces pressures to raise wages, since the cost of living remains stable, and the clamor for wage hikes are not as loud.
While wage rollbacks are not expected, at least current minimum wages, among ASEANS highest, can remain in place for a longer time.
This will allow us to be competitive in attracting foreign direct investment especially at a time when the Trump trade war is raising tariffs, compelling labor-intensive manufacturing to move to third party countries such as ours.
The announcement of the Chinese owned Hebei integrated Steel plant establishment in Batangas may be a case in point.
Basic economics teaches us that high poverty levels are not good for the economy, and bad for business, since the base of consumers of products and services goes down. Lower poverty can be achieved in high growth, low inflation situation. Less poor means a more robust, vibrant and expanding economy.
In the case of our immediate neighbor Malaysia, which imports 30-40% of its rice, has reduced poverty to about 2%.Rice prices remain low in that country, at a level the majority can afford.
That said, high economic growth and low inflation are what expand the economy. We need rice and other food prices to stay low, if not go down further for this to take place.
