SONA 2018: How much have prices increased in Duterte’s first two years?

Prices today are rising five times faster than they were before President Duterte took over.

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(Photo from Xinhua/Rouelle Umali)

The first two years of the Duterte presidency have been without a shortage of controversies. Endless allegations of human rights abuses related to its bloody drug war and recently its oppressive anti-tambay campaign (both targeting the poor) continue to face the administration. Tyranny has reared its ugly head as President Rodrigo Duterte placed Mindanao under Martial Law and intensified the militarization of the rural areas. Extrajudicial killings that target activists, journalists, and even local politicians are on the rise amid a reign of worsening impunity.

Its push for federalism through Charter change(Cha-cha) is widely seen as an attempt not just to perpetuate the current regime but to concentrate further political power in the hands of Duterte and his clique. With deepened control over Congress, Judiciary and the military through patronage, harassment and a combination of both, and with the backing of both the US and China, Duterte has been laying the groundwork for an authoritarian rule not unlike the Marcos years.

But while creating the illusion of consolidation of political power, all these are actually creating instability and greater conflict. Underneath this social unrest is the deteriorating living condition of millions of Filipino families. Indeed, as the Duterte presidency resorts to more repression and curtailment of human rights to assert its narrow political agenda, the overall economic direction it pursues only serves to accelerate the impoverishment and exclusion of the people.

This has been most felt by the public and most pronounced in the form of increased prices of key commodities and higher charges for basic services that have defined the state of the economy in the first two years of the Duterte administration. Looking at data culled from various government agencies and media reports, sharp increases were recorded in the pump prices of oil products; in the rates of public utilities like electricity, water and transportation; as well as in the retail prices of several basic food items.

More expensive food items and public utilities

The price of diesel under Duterte has already increased by almost 60%; gasoline by more than 33%; and LPG, by 23 to 45 percent. Residential rates charged to ordinary households by the Manila Electric Co. (Meralco) have jumped by 14 to 23% in the past two years. Water rates, on the other hand, are higher by 5% (Maynilad) to 8% (Manila Water). The minimum fare in jeepney has also been hiked by an equivalent of 29%, and by 9% (aircon) to 11% (regular) for buses. In addition, the flag down rate for taxis is 33% more expensive today. (See Table 1)

Table 1 utilities under Duterte SONA 2018

Among the food items, the largest relative increases in prices were observed in vegetables with some doubling their retail prices and others posting more than 60% price hikes. Significant increases were also noted in the retail prices of fish (14-20%); meat (14-27%); sugar (8-14%); and commercial rice, in particular the cheaper varieties consumed by most households (regular milled rice, 8%-hike; well-milled rice, 11%). (See Table 2)

Table 2 basic goods under Duterte SONA 2018

These significant increases in the prices of basic goods and services are captured by inflation rate data, which measure how fast prices are rising. For six straight months this year, the inflation rate has been steadily acceleratingand has already reached 5.2% in June, the highest in at least the last half decade. The rate of price increases today (January to June 2018 average inflation rate of 4.3%) is five times faster than it was during period immediately preceding Duterte’s term (January to June 2016 average inflation rate of 0.8%). (See Chart)

Chart inflation under Duterte

For most Filipino families, especially the poor and those in the lower income brackets, the rising costs of these basic needs mean tremendous pressure on household budgets. Also, the poorer the family, the larger they spend for food and to a certain degree for utilities (including housing) relative to their income as the latest Family Income and Expenditure Survey (FIES) of the Philippine Statistics Authority (PSA) shows. To illustrate, 59 to 60% of total expenditures of those with an annual income of less than Php100,000 go to food compared to 35% for those with Php250,000 or more. (See Table 3)

Table 3 family expenditures by type

TRAIN, neoliberal policies and Duterte’s accountability

What explains the rapid rise in prices especially in recent months? To deflect accountability, Duterte’s economic team points to global factors that are beyond the control of government such as the increasing world prices of oil and weakening peso against the US dollar (thus making imports more expensive). These economic managers are some of the country’s most rabid advocates of neoliberalism, a model of economic development that transfers control of economic factors from the government or public sector to the profit-driven market forces and private sector, taking the form of liberalization, privatization, and deregulation as well as fiscal reforms to lessen state subsidies and increase tax collections.

However, it is obvious that prices are climbing up because of the past neoliberal economic policies that the Duterte administration chose to continue and the new neoliberal programs that it has started to implement, chief among them the Tax Reform for Acceleration and Inclusion (TRAIN) Law. Implemented since January 2018, the TRAIN Law while lowering the personal income tax for also introduced additional taxes for socially sensitive goods such as oil products, triggering a spike in inflation as shown in the chart above.

Additional taxes on petroleum products under TRAIN aggravated the impact of the two-decade old Oil Deregulation Law which allows oil firms to automatically adjust pump prices every week. This year (up to July 17), oil prices have increased already by a total of Php6.45 per liter for diesel; Php6.00 for gasoline; and Php6.70 for kerosene. TRAIN accounts for 30% of the total price hikes for diesel and 33% each for gasoline and kerosene.

Without government regulation on price adjustments, the oil industry has also been further opened up to abuses and price manipulation. For instance, oil firms have implemented oil price adjustments that are about Php0.80 per liter (diesel) to Php1.26 per liter (gasoline) more than what the supposed movements in global oil prices and foreign exchange rates warrant (for the period January 1 to July 10, 2018); meaning oil players could be charging the public more than what they should. Of course, this only considers the import costs and does not factor in yet the far larger (and more important) impact on domestic pump prices of monopoly pricing at the global level. (How these estimates are made is discussed herebased on available data at the time.)

All these combine to make the price of oil exorbitant, which is crucial because of the strategic role that oil plays in making the economy run (manufacturing factories, power plants, transport, etc.) and has a domino effect on consumer prices, services and the overall costs of living. Fare increases for public transport are the direct and most visible impact of increasing oil prices.

The privatization of public utilities, meanwhile, has exposed the people to unabated increases in user fees such as what the captured markets of Meralco, Manila Water, Maynilad and other private electricity and water service providers are being subjected to. Liberalization of agriculture made the country highly dependent on food imports (including rice, vegetables and meat), thus exposing the people to the vagaries of the global market where speculators and monopolies dominate (aside from the local cartels such as in rice), even as our own small food producers and farmers are neglected amid lack of genuine agrarian development.

No ease in the rise of cost of living

The bad news is that the prices of basic goods and services are not seen to ease anytime soon as the administration persists in its neoliberal direction. Duterte’s Cha-cha, for instance, is about neoliberalismin the economy as much as it is about federalism. When implemented, Cha-cha will pave the way for foreigners to take over and run, among others, the country’s public utilities that could result to even higher user fees for electricity, water, telecommunications and transport as these strategic sectors become further detached from national interest and public welfare. Cha-cha will also allow foreigners to own agricultural lands that could further undermine domestic food production and consequently the costs of food while poor farmers are further displaced from their means of production.

Already, huge increases in water ratesare looming again under Maynilad (seeking more than Php11 per cubic meter hike in its basic charge) and Manila Water’s (Php8.31 per cubic meter) privatization deal with the government that allows them to increase their basic charge every five years (on top of various periodic, automatic adjustments) and to pass on questionable charges to consumers, most notably their corporate income tax. LRT-1 fares could also jumpby Php5-7 as part of government’s privatization contract with the consortium of the Ayala family and Manny Pangilinan’s group that allows them to hike their basic fare every two years.

And lest the public – still reeling from the impact of the first wave of increases under the TRAIN Law – forgets, more tax hikes (and consequently, spikes in consumer prices) are coming under Duterte’s tax reform program. The TRAIN law mandates that the excise tax for diesel, pegged this year at Php2.50 per liter, will climb to Php4.50 in 2019 and further to Php6 in 2020. For gasoline excise tax, the schedule is Php7 this year, and then Php9 and Php10 in 2019 and 2020, respectively.

Duterte’s tough guy personality and foulmouthed rants unseen before from a President may have in the beginning amused a public too weary of sweet-talking traditional politicians. But amid the ever-rising costs of the people’s basic daily necessities, Duterte is steadily being exposed as the same despised trapo who covet power while abandoning the interests and welfare of the people.

It certainly does not help that the public’s legitimate concern on skyrocketing prices is being met with apathy by the chief architects of Duterte’s flawed neoliberal economic program such as Budget Secretary Benjamin Diokno’s crybaby remark. Unconditional cash transfer and Pantawid Pasadadiesel subsidy for jeepney drivers to mitigate the impact of TRAIN, aside from already delayed, are band aid solutions that will not reverse the long-term impact of high prices.

The wanton killings under Duterte and his repulsive tirades have sparked public outrage and the people’s protests are spreading. The unabated increases in prices and the cost of living will only add fuel to the fire. ###

The curious case of NEDA’s Php10,000

NEDA (National Economic and Development Authority) did not say that a family of five could live decently with Php10,000 a month, according to Rappler’s “Fact-Check”. End of debate?

Actually no. While NEDA may not have directly referred to the Php10,000 as enough for decent living, the whole issue is what the amount of Php10,000 represents.

That “hypothetical” amount – the budget of an average Filipino family, said NEDA – was in fact based on the official poverty threshold fora family of five (i.e., Php9,140 as of first semester 2015, latest official data).

The PSA (Philippine Statistics Authority) defines poverty threshold this way:

“Food threshold is the minimum income required to meet basic food needs and satisfy the nutritional requirements set by the Food and Nutrition Research Institute (FNRI) to ensure that one remains economically and socially productive. Poverty threshold is a similar concept, expanded to include basic non-food needs such as clothing, housing, transportation, health, and education expenses).”

For the government, that is around Php10,000.

And there lies the problem. Using the ridiculously low poverty threshold as reference to show that the impact of high inflation and the TRAIN law on ordinary households is tolerable highlights the basic flaw of government’s appreciation of the true extent of poverty in general and of the impact soaring prices and regressive taxes in particular. #

Inflation surges for 5th straight month since TRAIN law

Inflation as of May 2018There is no end in sight for high prices under President Duterte.

Inflation rate has reached a new 5-year high this May at 4.6 percent. It has been continuously accelerating every month since the TRAIN Law took effect in January 2018.

Even Duterte’s economic managers could not say whether inflation has already peaked. This means that the public should brace for more surges in prices of basic goods and services in the months ahead.

By the second half of the year, for instance, we are looking at big-time increases in water rates in Metro Manila (earlier reports indicated a basic charge hike of Php8+ to Php12+ per cubic meter) as well as in LRT-1 fares (Php5-7) thanks to privatization. Public transport fares will likely increase too amid deregulated oil price hikes.

The poorer families obviously are the hardest hit but even middle-income households are also not spared.

Transport service Grab has been hiking their rates with impunity, taking advantage of the lack of a reliable mass transport system. Meanwhile, some 170 private schools in NCR have jacked up tuition by 5-15% this school year, which will hit monthly household budgets as most pay on installment basis.

Duterte’s economic managers assure the public that inflation will eventually taper off later in the year. What this means is that prices will continue to increase although at a slower pace than they are doing today. This assumes that global oil prices and foreign exchange rates will move favorably, which is difficult to bank on amid worsening geopolitical uncertainties.

Further, because the downstream oil industry is deregulated, government does not have the needed policy tool to ensure that the public and the economy are protected from sudden and drastic and often speculative increases in global oil prices. Not to mention that the industry remains monopolized and the prices dictated.

Oil continues to be one of the biggest drivers of high inflation in the country. According to the joint DBM-NEDA-DOF statement, oil price increases contributed 0.70 percentage points to the 4.6% May inflation. But increasing petroleum prices also pushed up food prices, with fish and seafood and bread and cereals, for instance, significantly contributing as well to the May inflation with 0.65 and 0.56 percentage points, respectively per NEDA data.

What is certain is that the impact of the additional taxes on consumer prices under the TRAIN law is permanent unless they are removed. Including the latest (June 3) oil price adjustments, the TRAIN law accounts for 29.3% of the total increase in diesel prices this year; gasoline, 32.6%; and kerosene, 34.4 percent.

Blog 08 Table OPH TRAIN

Amid all these, people do not simply complain but make concrete policy proposals that could at least provide immediate relief, such as removing the additional taxes under the TRAIN law.

But typical of the Duterte administration, we get responses ranging from the arrogant (e.g., Budget Sec. Benjamin Diokno’s crybaby remark) to the ludicrous (e.g., Finance Sec. Carlos Dominguez’s claim that the public’s supposed wasteful spending of their additional income under TRAIN is further driving prices up). #

Oil prices under Duterte

As we face another round of oil price hikes this week, here’s a look at how oil prices have skyrocketed so far under the Duterte administration. Before Duterte took over, the common price of diesel in Metro Manila was Php27.95 per liter while gasoline (RON95) was pegged at Php41.15. Today, these have jumped to Php42.85 and Php58.07 per liter, respectively. In some gas stations in Metro Manila, diesel is being retailed by up to almost Php48 per liter, and gasoline by almost Php61. Prices in other regions are even higher.

Prior to this week’s oil price adjustments, the TRAIN law accounts for 28% of the total price hikes in diesel, and 31% for gasoline. When gas stations implemented the TRAIN in mid-January this year, the common price of gasoline and diesel in Metro Manila immediately jumped by more than Php4 to almost Php6 per liter. Thus, while it is true that the TRAIN law is not the sole reason behind the recent spike in oil prices and consequently of faster inflation rate, it is certainly a major contributor.

Deregulation, which allows automatic oil price adjustments based on supposed global oil price movement and forex fluctuations, accounts for the rest. But is it true that government is helpless as its economic managers like to claim? Remember that like the TRAIN law, deregulation is a government policy. As such, it can be changed if only the Duterte administration has the political will to protect the public interest, especially the poor but also even the middle class who are reeling as well from escalating prices. Sadly, this is not the case. #

(Read more on how TRAIN law and oil deregulation are oppressing the people here – https://goo.gl/AMcgz8)

Oil firms profiteering thru excessive price hikes

From the start of the year up to May 15, the price adjustments in diesel may have been “excessive” by about Php1.03 per liter and gasoline by Php1.34 centavos per liter. This resulted in about Php53.74 million additional collections every day from diesel and gasoline products for the oil companies. Of this amount, Php6.45 million daily go to the Duterte government’s oil VAT collections (on top of its additional revenues from the TRAIN law’s oil excise taxes). 

(Photo from INQUIRER.net)

The Tax Reform for Acceleration and Inclusion (TRAIN) law is supposed to accelerate inclusive growth. But its immediate impact has been to accelerate the rate of movement of prices of basic goods and services in the country.

Since the implementation of TRAIN, the country’s inflation rate has continued to climb. Latest figures say that in April, inflation reached another five-year high at 4.5 percent. For the first quarter of the year, inflation averaged 3.8%, the fastest quarterly average since 2014.

Due to its domino effect on the costs of other basic commodities and services, the biggest driver of accelerated inflation rate it appears is oil. For one, TRAIN has significantly raised the pump prices of petroleum products. Inclusive of the 12% value added tax (VAT), the new petroleum excise taxes under TRAIN increased the pump price of gasoline by Php2.97 per liter; diesel, Php2.80; and kerosene, Php3.30 this year.

But TRAIN is just one, small part of the story behind high oil prices. For more than two decades now, oil price adjustments in the Philippines have been deregulated, thanks to the neoliberal policy impositions of the International Monetary Fund (IMF) in the 1990s.

Deregulation means that oil companies could automatically adjust prices at the pump. This year alone, there have been already 15 rounds of oil price hikes, as of mid-May. The weekly price adjustments increased the pump price of gasoline by Php5.10 per liter; diesel, Php6.15; and kerosene, Php5.85.

Table 1 summarizes the impact of the TRAIN law and the weekly oil price adjustments under deregulation on petroleum pump prices so far this year.

Tab 1 OPH 2018

These price increases in petroleum products – and the consequent direct and domino impact on inflation – are in fact even more burdensome and abusive for the public than they already are. Taking advantage of deregulation, it appears that oil companies continue their practice of implementing oil price hikes that are bigger than what the world market supposedly warrants. This allows them to pocket extra profits on top of their regular net income, as the government also reaps windfall tax revenues at the expense of consumers.

Looking at local oil price movement from the start of the year up to May 15, the price adjustments in diesel may have been “excessive” by about Php1.03 per liter and gasoline by Php1.34 centavos per liter. This resulted in about Php53.74 million additional collections every day from diesel and gasoline products for the oil companies. Of this amount, Php6.45 million daily go to the Duterte government’s oil VAT collections (on top of its additional revenues from the TRAIN law’s oil excise taxes).

The Department of Energy (DOE) and the oil companies explain that domestic price adjustments merely reflect the movement in global oil prices plus the fluctuations in the foreign exchange (forex). For the Philippines, the international benchmark for refined petroleum products is the Mean of Platts Singapore (MOPS).

But based on the weekly MOPS adjustments and forex fluctuations as posted in the DOE website, the total price adjustments in diesel for the year should have only been around Php4.12 per liter (as of May 15, excluding the week of March 26-30 which the DOE did not post MOPS and forex data on) while the actual net price hike reached Php5.15 during the same period (excluding the weekly adjustment after the March 26-30 period to allow comparison). The same thing is true for gasoline which posted a net increase of Php4.20 per liter when the total adjustments should have only been about Php2.86 per liter.

The process of estimating the price adjustment is pretty straightforward. Oil companies claim that price adjustments for the present week is determined by MOPS price adjustments (expressed in US dollars per barrel) and the average forex in the past week. For instance, if last week the MOPS diesel increased by US$2 per barrel with the forex pegged at Php50 per dollar, how much should the price hike be in local diesel prices for the current week?

Step 1 is to convert the MOPS price adjustment into peso per barrel. So, US$2 x Php50 = Php100 per barrel.

Step 2 is to convert the MOPS price adjustment into pesos per liter. One barrel has 158.99 liters. So, Php100 / 158.99 = Php0.63 per liter.

Step 3 is to include the 12% VAT to get the final estimated adjustment. So, Php0.63 x 1.12 = Php0.70 per liter.

Thus, a US$2-per barrel increase in MOPS diesel at Php50 forex rate in the previous week translates to a 70-centavo price hike in the domestic price of diesel in the current week. Anything above 70 centavos is supposedly unjustified or excessive, based on this price adjustment model.

It is important to stress that determining whether price adjustments are justified or not based on the MOPS and forex movements does not in any way represent the true extent of how much prices are artificially bloated due to the monopoly control of big oil companies in the global and local markets. It just illustrates how deregulation can be easily abused by the oil firms operating in the country through implementing adjustments that are beyond the supposedly justified amounts by so-called international benchmarks such as the MOPS.

With the Philippines being one of the world’s most oil intensive economies, even the several centavos that oil companies overcharge through questionable price adjustments already translate to massive extra profits for the oil industry.

Using 2017 domestic consumption data from the DOE, oil firms are earning (excluding the VAT, which goes to the government) an estimated Php27.23 million daily in extra profits from diesel and Php20.06 million daily from gasoline. These are derived at by multiplying the Php1.03 per liter in estimated excess price adjustment in diesel by the diesel consumption of about 29.94 million liters daily; and the Php1.34 per liter in estimated excess price adjustment in gasoline by the gasoline consumption of around 17.03 million liters daily.

Based on 2017 market share (per DOE report), the Big Three which continues to dominate the local market after more than two decades of deregulation, cornered 55% of the estimated daily extra profits of the oil firms – Petron, Php13.05 million a day; Shell Php9.46 million; and Chevron Php3.31 million.

Table 2 summarizes the estimated extra earnings of the oil companies and the government from excessive price hikes in diesel and gasoline.

Tab 2 Extra income OPH

Again, these guesstimates merely scratch the surface by comparing local and international price changes. In reality, with or without price adjustments, big oil companies that run and control the global oil industry – from the vast oil fields in the Middle East all the way to the thousands of gas stations nationwide, and all the technology and infrastructure that keep this massive network together – retail petroleum at prices many times their actual production costs.

To illustrate, the Philippines imports 79% of its crude oil from just three countries – Saudi Arabia, 35%; UAE, 28%; and Kuwait, 16% (as of first half 2017, according to the DOE). The production costs of crude oil in these countries, based on 2015 data (as cited by CNN Money), are just US$9.90 per barrel for Saudi Arabia; US$12.30 for UAE; and US$8.50 for Kuwait.

Yet, in 2015, Philippine domestic prices were based on the posted price of around US$51.23 per barrel (2015 average posted price of Dubai crude, based on International Monetary Fund or IMF monitoring). This means that oil firms in the Philippines pegged pump prices at crude oil prices that are about four to six times of the actual production costs.

Under deregulation, the government has abandoned its responsibility to determine if domestic oil prices – whether in terms of price adjustments based on global prices or more importantly, in terms of reasonable prices based on production costs – are justified or not. The public’s burden is aggravated more by price speculation in the global oil market that further artificially drives up local prices which consumers fully bear because of deregulation. #

(First published by Bulatlat.com, this article is an updated version of an earlier blog post.)