NAME: Gregor Alexis T.

Roma

COURSE & SECTION: Political Science 3-2

SUBJECT: Political Economy

PROFESSOR: Jumel Estranero

UNIVERSITY: De La Salle University-Dasmarinas

INFLATION: HOW DOES IT AFFECT AVERAGE FILIPINO HOUSEHOLD AMIDST

THE 21ST CENTURY

INTRODUCTION

Inflation is considered as the rising of prices or can be defined as the decline of

purchasing power over time, according to Fernando (2023). It is the general increase in prices
and fall in the purchasing value of money. The term originated from the Latin word inflare
which means to blow into, or to inflate, in which the term was used in reference to something
that happens to paper currency(money), as Bryan (1997) stated in his book “On the Origin and
Evolution of World Inflation”. On the stretch of the 21st century, inflation has been an integral
factor in the way of life of many Filipinos. This persistently challenged Filipinos’ resilience and
ability to adapt to the changes brought about by the changing currents of globalization.

Challenges rise along the way that affected inflation. The emergence of the COVID-19
pandemic, war between countries, climate change, and the competition of transnational
companies on limited resources contributed to the inflation we all feel today. No one is exempted
to inflation’s effects, from businesses, hospitals, schools, to normal consumers, no matter the
social class or status.

This study aims to know the effects of inflation on average Filipino families, particularly
on their basic needs and daily expenses; food, shelter, healthcare, utilities, education, and
transportation amid the 21st century.
BODY

According to Fitch Solutions Country Risk and Industry Research, a substantial portion
of the average Filipino family's household budget were spent on food, with a focus on meat and
poultry goods. The primary cause for the increase in spending is due to higher disposable
income.

Spending on carbohydrate staples such as bread, rice, and cereals will decline from 36
percent to 20.4 percent in 2025 as households consume more animal protein such as meat and
fish. Between 2006 and 2025, average Filipino families will spend more on meat and poultry—
22.3 percent versus 17.5 percent of total food consumption—while spending on fish and fish
products would rise to 24.2 percent versus 12.7 percent.

Anyone who buys for food on a daily basis has likely seen a significant spike in the
pricing of imported fruits, vegetables, and meats. According to the United Nations' FAO Price
Index, prices have risen by up to 35% in the recent year, in line with worldwide price
fluctuations.

"Consumers are spending around 20% more on food now than they were prior to the
epidemic," says Melissa Walsh, CFA, CFP, AIF, founder, and president of Clarity Financial
Design. "With food and energy prices both rising, families are seeing that trips to the
supermarket and the station are stretching their paychecks," she notes. The rise is especially
noticeable during the Christmas season.

The price increases are due to food shortage, which is driven by two factors. The first is
the global food supply chain disruption caused by COVID. The second issue is the scarcity of
freight containers, which China now controls.

Inflation is affecting consumers at every level. Gas prices are rising, clothes are
becoming more expensive, and many toys are becoming pricier as the holidays approach. The
COVID-19 pandemic also contributed to supply chain shortages all over the country. Products
may not be available due to shortage on raw materials for manufacturing and packaging, which
in turn rises the price of the product in response to its demand. "Labor shortages are another
concern. These challenges vary from labor to unload shipments at ports to staffing food
manufacturing plants and truck drivers to distribute the food. "This is a multi-industry problem,
with rising salaries and fewer labor leading to higher costs and fewer products," Walsh says.

In the last three years, the Philippines has had the region's highest food trade imbalance,
amounting to 2% of GDP. When the fuel trade imbalance is included in, this figure falls to -5%
of GDP. This implies that because the Philippines relies on imports from India and other
countries for necessities such as rice, it lacks weapons such as strong protectionism to help it
through this crisis. Instead, it is a victim of other nations' food nationalism since the global
supply crunch affects it the most severely through shortages and increased costs.

Inflation also influenced housing industry. A catastrophic coronavirus-induced economic

crisis has ended the Philippines' decade-long property market surge. The government's botched
pandemic response has exacerbated the situation. From 2010 to 2018, the Philippines saw a
housing price bubble, with Makati CBD prices increasing by 125% (77% inflation-adjusted).
However, due to a weakening domestic economy and the trade war between the United States
and China, the housing market slowed considerably in 2019, with home prices growing by only
0.9% and declining by 1% when adjusted for inflation. The COVID-19 epidemic exacerbated the
situation in 2020, bringing the housing market to its knees. In fact, according to the Global
Property Guide's 2020 Global Home Price Survey, the Philippines has the poorest performing
property market, with Makati CBD house prices falling 13.2% (-16.1% inflation-adjusted) last
year.
 According to JLL, residential rentals in Metro Manila declined 19.8% year on year to an
average of PHP 38,700 (US$796) per month in Q1 2021. Residential rentals declined 1.2% year
on year in the most recent quarter. "Rental drop can be related to a downturn in general leasing
activity, which was formerly fueled by midway home searchers and expatriate housing,"
according to JLL. Among the main Metro Manila CBD regions, Muntinlupa saw the greatest
drop in residential rentals, at 9.7%, in the year to Q1 2021, followed by Taguig City (-9.3%) and
Makati City (-9.2%). Rents fell in Pasay (-7.7%), Manila (-7.5%), Mandaluyong (-7.5%),
Quezon City (-5.2%), and Pasig (-1.9%) as well. Only Paranaque City had a 4.4% year-on-year
rent rise in Q1 2021.

It is not only the rent that is affected, but also the cost of construction materials. When
inflation is high, material costs rise as well. As a result, building teams may find it increasingly
difficult to build new homes or modify old ones. Eventually, such high expenses may seep into
the housing market, raising home prices for new construction. "When there is inflation in the
marketplace, it impacts all of the costs of commodities to build a house," says Buehler. "As a
result, we may see builders maintaining higher pricing since it costs them more to build a house."

In terms of healthcare services, according to researchers, medical supplies have risen by

20.6% per patient, while hospital medicine costs have risen by 28%. Healthcare systems are also
spending more on employees, with inflation expenses up 19% in the last two years. Philippine’s
medical trend rate – which measures medical cost inflation – is projected to rise to 10.1% in
2020, up from 9.3% in 2019, according to a new report by Mercer Marsh Benefits (MMB).

"Medical expenditures in the Philippines continue to surpass inflation, which is

unsustainable in the long run," said Teng Alday, Mercer's CEO for the Philippines. While the
epidemic has brought cost control to the forefront, companies must strike a balance between
economics and empathy in order to deliver relevant health programs while also maximizing
return on investment."

Employers in the Philippines are expected to spend more money this year to meet their
employees' growing healthcare needs, which are expected to become more expensive as the
pandemic approaches. Employer-sponsored healthcare benefits expenditures in the Philippines
are predicted to climb 14.4% on average this year, according to a study of 209 medical insurers
from 61 countries conducted by global advisory and brokerage firm Willis Towers Watson
(WTW). "Markets and employers are reacting differently; some see the need for regular medical
services in 2021, while others will see it next year or later," Cedric Luah, WTW's global head of
health and benefits, said.

According to data from the Philippine Statistics Authority, healthcare spending in the
Philippines has increased. Overall health spending in the Philippines increased 12.6% year on
year to P895.9 billion in 2020, including public expenditures, owing to the coronavirus epidemic
that disrupted the public healthcare system. For people who live along the slums, those
struggling to provide for their monthly expenses, and families working under minimum wage,
this seems like a heavy burden.

As products and services were not exempted from inflation, household utilities such as
water, electricity and it also affected internet usage. The home electrification rate in the
Philippines was 95.41 percent in 2021, up over three percent from the previous year. In that year,
Luzon had the greatest degree of home electrification among the main islands. The government
intends to achieve 100% electrification by 2022. It is worth noting that the countries with the
highest electricity prices in the world — Germany and Denmark — also have the highest
concentration of wind-solar, variable renewables that are intermittent, unstable, and unreliable,
relying on weather for power supply and necessitating state subsidies to become "economically
viable." According to EnerData, the Philippines has the second highest pricing in 2017, at around
18 US cents/kWh, following only Japan's 23 cents/kWh.

A study by James Lightning, a senior editor of Energy Professionals (2021), there are
three main factors for electricity prices; (1) general demand for electricity; (2) availability of
generation resources; (3) raw commodity costs/supply/demand. In May 2022, San Miguel Corp.
(SMC) and Manila Electric Company (Meralco), the Philippines' largest distribution utility,
submitted a combined petition with the ERC for a temporary amendment to the 2019 power
supply agreements. The explanation given was the rising cost of coal and natural gas, which are
used to generate energy. SMC reported a USD 255 million loss owing to increasing gasoline
prices in an unaudited financial statement (15 billion Philippine pesos). The SMC confirmed that
the measure was intended to recoup a third of the losses with no margin. However, the petition
was denied by the regulator. It stated that both companies were responsible for including such
prospective price increases into their risk-mitigation plans. The ERC declared that it "cannot
offer relief to any party for its miscalculations, imprudence, or inadvertence, at the cost of
consumers". The ERC's chairperson also noted that the appeal was denied because Meralco and
SMC did not exhaust all possible alternatives before submitting it.

This scenario spells a lot for Filipinos that heavily rely on electricity for everyday life.
Electricity price hike were due to the power system’s reliance to imported coal and diesel for
energy manufacturing, and rotating power outages. In the rise of the war between Russia and
Ukraine, coal and diesel imports became scarcer, leading to the price hike due to its demand.

Water shortage and price is also connected to inflation. In the Philippines, more than 3
million people rely on hazardous and unsustainable water sources, while 7 million lack access to
proper sanitation. Despite its increasing economy, the Philippines confronts substantial water and
sanitation access difficulties. The country is quickly urbanizing, and its expanding cities are
struggling to provide appropriate water and sanitation facilities to new citizens. Observing trends
in inflation and water tariffs is important because when these "prices" fluctuate abruptly or
continuously over time, they often lead to the degradation of a particular good's or service's
buying power and affordability.

Last 2019, Manila Water Company, Inc. Inc. has threatened a 780 percent hike in water
tariffs, or as high as P26.70 per cubic meter, as well as worse traffic in Metro Manila if the
Supreme Court (SC) judgment from last August is not reversed. "If the concessionaires compress
what was planned as a 40-year project into five years as the Supreme Court ruling requires, the
hundreds of billions of pesos required would lead to an increase in subscribers' water bills,
leaving them less money for other necessities and triggering higher inflation," Manila Water said
in a statement. Two years later, the Metropolitan Waterworks and Sewerage System (MWSS)
Board of Trustees has accepted Manila Water and Maynilad's proposal for water service pricing
increases. Following an examination of the grounds provided by the two water concessionaires,
the MWSS granted their proposals. Manila Water requested a water tariff increase, claiming that
it is required to cover its P180 billion operational expenditures over the next five years.
According to an article of Manila Bulletin (2022), for Manila Water, the rate hikes will be as
follows: P8.04 per cubic meter (cm3) hike for 2023, P5.00/m3 for 2024, P3.25/m3 for 2025,
P1.91/m3 for 2026, and P1.05/m3 for 2027. Together with “new water” source, the rates for the
years 2026 and 2027 may increase to P3.00/m3 and 1.08/m3, respectively. or Maynilad, there
will be a P3.29/m3 hike for 2023, P6.26/m3 for 2024, P2.12/m3 for 2025, P0.84/m3 for 2026,
and P0.80/m3 for 2027. With the “new water” source, the rates for the years 2026 and 2027 may
increase to P1.01/m3.

Inflation of water prices in the Philippines were due to the following reasons: clean water
source, El Nino drying up reliable water sources, infrastructure delays, and the rising demand in
water. Since the demand is higher than the supply, there are not enough water sources to cover it,
hence the price hike. With the effects of climate change present, the stock of the country's
groundwater resources declined. The closing stock of groundwater resources, or the volume of
groundwater accessible at the conclusion of a particular year, fell at an annual rate of 1.4%, from
265.5 billion cubic meters in 1988 to 244.6 billion cubic meters in 1994.

Internet service providers, on the other hand, benefited from the global COVID-19
pandemic, as most Filipinos rely on internet usage for entertainment, education, news and even
grocery shopping, as restrictions prevented people from going out of their respective homes.
Reports from the country’s biggest telecommunication companies showed that the number of
broadband subscribers grew during the COVID-19 pandemic. "This pandemic has made the
Internet important for millions of Filipino families," said Butch Jimenez, SVP and head of PLDT
Home Business, in a PLDT release. Research firms Hootsuite and We Are Social, in their Digital
2021 report, said that there are a total of 73.91 million internet users in the Philippines as of
January 2021. In comparison to the same period last 2020, the figures increased by 6.1 percent. It
also accounts for 67 percent of the overall population of the country. Internet users aged 16 to 64
were found to spend an average of 10 hours and 56 minutes a day on the internet using any
device. This is longer than the data from 2020, which was just 9 hours and 45 minutes. The 2021
research also indicated an increase in the global average of internet use to 6 hours and 54
minutes, up from 6 hours and 38 minutes last year. According to a poll conducted earlier this
year by consumer comparison website Cable.co.uk, residents in the Philippines spend an average
of $53.71, or P2,582.25, each month to connect to the virtual world online. It is less expensive
than the global average of $78.14 across 211 nations. In terms of internet connection costs, the
Philippines ranked 199th globally. Since internet became an integral part of Filipino’s daily
lives, most families allot money to purchase it. With the ongoing inflation, internet service
providers ensure that internet services will be accessible for consumers.
Transportation costs were evidently affected by inflation. Transportation inflation was 12.5
percent last october, contributing 14.8 percent to overall inflation. Because our transportation
industry is nearly entirely reliant on imported fuel, this will always be an issue. Diesel was the
major contribution to the transport inflation rate, which was up 54.4 percent, a decrease from
74.2 percent in September. Gasoline prices were up 15%, down from 27.7% the previous month.

The Philippine Statistics Authority stated that the country's inflation rate for July 2022 increased
to 6.4 percent, which is above the 5.6 to 6.4 percent anticipated range for the month by the
Bangko Sentral ng Pilipinas. Transport inflation, one of the primary inflation drivers, surged to
18.1 percent in July 2022. The major reason for this was a countrywide temporary rise in PUJ
(Public Utility Jeepney) rates. According to the PSA, one major contribution to the increase has
been the ongoing rise in oil costs, particularly for diesel, which is commonly used by drivers and
operators of public utility vehicles (PUVs).

Diesel inflation was 86.2 percent in May 2022. In April 2022, the rate of inflation was
83.7 percent. According to the group, this is evident in increased gasoline prices, driver layoffs, a
collapse in public transit supplies, more commuters suffering longer lines and waiting times, and
packed commutes in enclosed areas.This comes as the Move As One organization emphasized
that transportation employees' salaries are already "dwindling" due to record-high gasoline costs,
which prevent them from working on a daily basis.

According to the Pagkakaisa ng mga Samahan ng Tsuper at Operator Nationwide, drivers

are suffering because of rising oil prices. Gas prices are a significant problem because it impacts
everything. Some companies are trying to offer transportation as part of their packages or
benefits because employee salaries can no longer pay the cost of gas to get to work every day.
Some schools are even reconsidering 100 percent face-to-face classes every day next school year
because public transportation options keep decreasing daily.

It is a real problem, and it’s getting worse daily. Filipinos who continue to get stuck in
traffic daily may not believe it, but recently there have been fewer vehicles on the road. And the
simple reason is that more and more people are trying to find alternative ways to get where they
need to be. At the same time, public transport vehicles are cutting back because even the hike in
fares isn’t enough to cover the rising cost of gas.

Education sector also greatly suffered with the inflation, not only on teachers, but on
students and parents alike. "With the country's inflation rate reaching a 14-year high of 7.7
percent in October 2022, the buying power of entry-level public-school teachers' P25,439
monthly compensation is reduced by P3,862 or P175.55 in daily pay," according to the Alliance
of Concerned Teachers (ACT) Philippines. This is a big blow on teachers, especially that basic
necessities and healthcare insurances cost more than usual due to the ongoing inflation. Students
were not an exemption to price hikes, as they contribute to the economy by the means of
purchasing school supplies, tuition fees, and other school-related services. This also includes
transportation, internet usage, access to academic literature and quality education. With the rising
prices, average Filipino families can struggle in meeting ends, especially when they have kids
that are currently attending school. With the current minimum wage trying to fit in daily
expenses, it can pose as a challenge for survival.

ANALYSIS

Inflation affects every aspect of an average Filipino household’s needs. Food inflation,
housing and construction materials price boom, healthcare insurances and products rising prices,
electricity, water and internet price hike, transportation price growth, and even education costs
getting pricier, no one is immune to inflation and its effects. It erodes purchasing power, hurts
the poor disproportionately, keeps deflation at bay, raises interest rates, lower debt service costs,
causes painful recessions and hurts bonds and growth stocks, according to Floyd (2022). With
globalization in the picture, inflation seems like a consequence of human actions all over the
globe, which is why it is felt globally.

For an average Filipino family, inflation is felt hard. With the groceries slowly slipping
out of budget due to rising prices, slow house-building or renovation due to costly materials, it
can even result to serious problems like joblessness, children quitting school due to pricey costs,
and people slowly succumbing to poverty. Rising prices results in low grade of affordability,
which means that the capacity to purchase basic necessities drop. With inflation rampaging, the
value of Philippine Peso is undervalued, which results to families living in the province poorer.
Like how globalization is inevitable, inflation is unavoidable. But it does not mean that there is
no solution to inflation.

RECOMMENDATION

Beating inflation is no easy feat. It is unavoidable, but there are still remedies for its
effects. While the government is finding ways to ease up the effects of inflation, for average
Filipino families, resilience and skills are the anchor to survive the waves of inflation. Planning
ahead your expenses by reviewing your present expenses and budget can help in easing the stress
of inflation. Exploring other sources of income can also alleviate the problem on rising prices.
Part-time jobs, or just side hustles that can help you earn extra income will be helpful, especially
in dire situations. Reducing expenses or recalibrating your lifestyle into something more feasible
can benefit you these times. Investing is also a great option now that we are in the midst of
inflating prices. And lastly, starting life insurance can save you and your family in case of
emergencies and aid you in achieving your goals. Having an insurance is also considered as
preparation for important life breakthroughs.

CONCLUSION

Inflation is a global phenomenon that affects everyone globally. It is considered as the

rising of prices or the decline of purchasing power over time. It has a big effect on our economy
as a whole, and no one is exempted from it. As such, inflation deeply impacted our basic
necessities such as food, shelter, healthcare, education, transportation and utilities. As inflation
continues to rampage, more and more people can succumb into poverty and be forced to make
irreversible or undesired decisions. With this in mind, average Filipino families can learn to
adapt into the waves of inflation by being prepared for it, being aware of their expenses and
money allocations, recalibrating their lifestyle to ease up the stress of price hikes, taking
advantage of insurance and investing in businesses.

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