30 Aug 2020 – What does it matter – the ‘low’ inflation rate – when, in COVID-19, households are buying different commodities from what were in the CPI basket in 2018.
True, nominally, minimum wage earners have lost buying power (about P15 in Metro Manila), but little consolation for those millions who have lost their jobs or have not returned to work.
Remember the March-April 2020 scramble when people put themselves at risk to stock, or worry about where to find money to stock, essential goods …
Those were the days when people’s consumption patterns started to change with COVID 19.
The numbers of COVID cases were different then – average 200 cases then, average 2,000 cases in August.
Philippine inflation rates are based on trends of prices of goods and services which households buy in 2018, a basket totally upended by COVID 19.
Households have patterns of expenditures by income classes; certain proportions of income spent for commodity classes.
The rich buy certain things; the non-rich buy different things.
Reduced incomes lead to change in consumption patterns,
Following down the pattern of spending of those with lower incomes.
COVID 19 created or accelerated demand for certain things, and cut demand for others.
Unless the PSA quickly changes the basket and proportions of spending by households based on a new 2020 FIES (family income and expenditures survey), the inflation report would not reflect the real increase in prices of commodities now bought by households.
The consumer price indices are currently based on FIES 2018.
Incomes and expenditures in 2018 are radically different from incomes and expenditures in January, or even in March when the scourge started, or August 2020.
Household spending patterns are also different by regions, or from aggregate Philippines.
There are also differences by income class or other. There are radical differences in spending by households earning under P100,000 per year and those earning P100,000 and over.
Would it have mattered if we were using 2020 expenditure patterns?
For expenditures with substantial differences in household shares of incomes:
Food would have gone up closer to 60% of total household expenditures.
With COVID, there are new or resurgent items in the basket.
Foremost are those we have termed MWFF (Masks, Wash hands, Physical distancing, Face shields).Health products – masks, alcohol, alcogel, medical expenses.Cleaning, disinfecting products,
Much of incomes must be going to these, particularly to food, health, utilities.
Even for tobacco, for people in distress to calm themselves.
There are items where spending have been cut:
Food regularly consumed outside the home;
the other alcohol, the drinking kind; recreation, culture; furniture, durables.
Special occasions, which are now mostly limited to those at home,
with others contenting themselves with virtual greetings and virtual hugs and kisses.
Spending for these items have been reduced or deferred.
Spending for miscellaneous goods and services are a mix;
Personal care must be up, but personal effects like jewelry down.
Financial services have been locked down by regulation,
although digital transactions (fee-free for now) have exploded.
Travel passes, medical certificates, related documents – they are essential now.
Church contributions must be down, as church attendance has been considered less deserving than eating at restaurants.
Here’s a quick rundown of probable spending trends with COVID-19:
|Expenditures in 2018 FIES||P40k-99k||P100k-499k||My opinion on probable spending under COVID-19|
|Even with the same amount of food spending, proportion devoted to food has gapped up|
|Huge decline in spending and proportion, with strict hotel and restaurant restrictions|
|Alcoholic beverages||0.8||0.6||On-off ban on alcohol|
|Smoking probably increased, driven by stress and much thinking|
|Other veggie based products||x|
|Clothes & footwear||
|Who’s buying, with malls, shops closed; money shifted to more essential items|
|Furnishings, HH maintenance||
|Increase on cleaning products, laundry; domestic and household services, other items xxx down|
|Health||1.85||2.35||Must have exploded: vitamins, PPEs, health monitoring devices, outpatient, hospitalization|
|Water, electricity, gas||
|Increased with many people staying home; increased washing hands, baths|
|Steady residential rent, but many unable to pay|
|Restricted public transport, more rides to get where going, restricted tourism|
|WFH increased, increased contacts through social media|
|Recreation, culture||0.4||0.6||Really down, games from home|
|Reduced enrolment, tuition discounts, online learning, one-time spending on devices, recurring load, learning materials|
|Miscellaneous goods & services||
|Spending for personal care up, personal effects down, insurance mixed, financial services, padala huge increase, although zero transaction fees for now; travel passes, medical certificates, other docs – ‘new’ spending items|
|Who’s buying, except motorcycles and bicycles|
|Special family occasions||1.3||2.6||CFH, celebrations restricted to home|
|Taxes will be down next year; gifts down; contributions, church collections down|
Food spending would be closer to that of households belonging to the three first deciles.
Much of available income (at least in the Philippines) are now for food.
No more dining out, or coffee/tea meetings outside with others
Housing rents must be stable,
but what does it matter that rents are not rising to millions of households with no or reduced incomes unable to pay rent, merely postponing the inevitable reckoning down the road …
Transport, the lack of which some experts say have prevented workers from going back to work, has been savagely restricted.
Delivery of food, groceries and essential items has flourished,
but it does not make up for the limits in public transport.
Alcohol, the staple in the poor’s recreation,
with drinking in the usual places banned.
Few are buying clothes and footwear.
Furnishings and house maintenance money have been diverted to essentials.
Spending on health – vitamins, supplements, other concoctions, has multiplied.
Out-patient consultations have been partially offset by online medicine. However, we shudder to think what has happened to spending on ‘maintenance’ medicines.
Water, electricity, gas – up with people cooped, or working, at home.
Communication spending has ballooned.
Virtual links and relationships, orders for delivery services, the demands of online education, the proliferation of webinars and online meetings.
Recreation and culture have been driven to the ground,
with gardening, literally to the soil, and other hobbies exploited not only for recreation but at times even for raising money. Pets have been seen for sale in Facebook.
Tuition is now the least of parents’ worries.
Expenditures for modular distance learning, online distance learning, TV/radio-based instruction, or blended learning.
Devices, load and connectivity, parent participation are new headaches.
Miscellaneous goods and services –
Who’s buying durables these days except the rich?
Others could not even afford wearables.
Special family occasions, almost a necessity for the family-oriented, are now done at home.
Jabee and the little Jabee have had few engagements in the last few months.
Accommodation services are only for the rich (or quarantined OFWs),
with trips and staycations (overseas or domestic) on hold.
And, pray, what these severe cuts in spending are doing to employment and incomes.
With incomes reduced or disappeared entirely,
the economic cycle, now the dismal one, pervades.