As the LTFRB raised transport fares, economists foresee bigger hikes in inflation.
Local economists said Filipinos should prepare for greater inflation in the upcoming months as the recent fare rise and the Holiday season will drive up commodities prices.
The Land Transportation Franchising and Regulatory Board's (LTFRB) decision to raise fares will result in inflation and may lead to numerous price increases and calls for wage increases.
Last week, the LTFRB approved a ₱1 fare increase for jeepney fares and Modern Public Utility Jeepneys (MPUJs) for the first four kilometers; ₱2 increase for bus fares for the first five kilometers; a ₱5 increase in the taxi and transportation network vehicle service (TNVS) flag down rate, among others.
“Its increases in prices might be significant. That is why we’ve been saying that part of the limited budget should be used as subsidies targeted to transport and logistics so that we can forestall price increases in other goods and services. Transport and logistics have wide linkages with the rest of the economy,” the Business Mirror quoted Ateneo Center for Economic Research and Development (ACERD) Associate Director Ser Percival K. Peña-Reyes.
Peña-Reyes said given the holidays and the recent increase in fares, it is possible for the country’s inflation to average 8 to 9 percent in the last quarter of the year. This means inflation will average around 6 percent this year.
Peña-Reyes citing data from Ateneo de Manila University Department of Economics Chair Alvin P. Ang that
“A 1-percent increase in the price per barrel of oil leads to an increase of about 11 basis points in the overall inflation rate, an increase of about 11 basis points in food inflation rate, an increase of about 10 basis points in utilities inflation rate, and an increase of about 16 basis points in transport inflation rate.”
Meanwhile, University of the Philippines School of Economics head of research Renato E. Reside Jr. said the rise in transportation costs will be a factor in the headline inflation rate.
Reside Jr emphasized that one of the main routes will be to increase core inflation, which is inflation that does not include price rises in volatile food and energy costs. The Philippine Statistics Authority (PSA) said core inflation continued to rise by 4.6 percent in August from 3.9 percent in July 2022 and 2.8 percent in August 2021.
Commodities that are excluded from the computation of core inflation together account for 29.57 percent of the weights in the Consumer Price Index (CPI). The commodities that had the largest weight were cereals at 9.35 percent; Meat, fresh, chilled or frozen, 4.82 percent; Electricity, 4.55 percent; and Fish, live, fresh, chilled or frozen, 4.17 percent, among others.
“Transport prices excluding energy have a weight of more or less 6 to 7 percent in the consumer basket, so fare increases can have a nontrivial effect on inflation. I do not have an estimate of how much this might be though, and the effect also depends on the size of the relative increases in transport fares,” Reside said.
Meanwhile, Maria Ella Oplas, an economist at De La Salle University, said higher fares may prompt labor groups to demand salary hikes. This, unfortunately, is a domino effect of the fare hikes.
Oplas emphasized that a potential wage increase would result in "cost-push" inflation, which would raise the price of products and services. This is fuelled by the fact that the country is already in the ’ber months, which spurs demand for various commodities.
“Let us not forget that it’s ’ber season already so we know that as scheduled, demand by the opening of the economy and the coming Christmas season will pull up prices,” Oplas said.
“So that is a double effect. It is increasing because production cost increased and at the same time demand is pulling it up as well.” He added.
Oplas noted that the recent price increase is a problem, especially for the families of abroad Filipino workers who are now enjoying advantage of the weak peso. On September 16, the peso reached another record-low closing rate dollar, falling at ₱57.43.
The gains in the exchange rate of Overseas Filipino Worker families when remittances flow in time for the holidays may be offset by the increase in consumer prices, Oplas noted.
In line with this, Peña-Reyes and Oplas said it is also expected that the Central Bank will have no choice but to raise interest rates further.
Peña-Reyes said this is especially the case if inflation rises to 8 percent to 9 percent. This could prompt the Monetary Board to raise interest rates by another 100 basis points.
This is despite claims made by the Asian Development Bank (ADB) that the Bangko Sentral ng Pilipinas (BSP) is already the most aggressive Central Bank in the region when it comes to raising interest rates.
“Depende din sa galaw sa US. If US hikes, we need to preserve interest differential to keep dollar investments here and prevent further weakening of peso, which feeds into inflation because of our trade deficit importing oil, food, production inputs, etc. Vicious cycle, as described by Dr. Ang,” Peña-Reyes said.
In the LTFRB decision, jeepney fares for succeeding kilometers (km) will also increase to ₱1.8 from ₱1.5 while for MPUJs, the approved increase was ₱2.2 from ₱1.8 per km rate.
For public utility buses, the LTFRB said the succeeding kilometer rate will increase to ₱2.25 from ₱1.85 while for aircon buses will be ₱2.65 from ₱2.2 per km.
In provincial buses, the per km rate was up to ₱1.9 from ₱1.55, for deluxe buses, ₱2.1 from ₱1.75; Super Deluxe, ₱2.35 from ₱1.95; and luxury, ₱2.9 from ₱2.4 per km.
LTFRB said the rates were approved in consultation with the National Economic and Development Authority (NEDA), the Department of Energy (DOE), and other key transport stakeholders.
Tags: #LTFRB, #inflation