Purchasing Power Drops in Election Derby

Whoever wins the presidential election on May 10 should have the political will to grant the demand for a substantial wage hike and to institute price controls in order to arrest the precipitously eroding purchasing power of the peso.

By DANILO ARAÑA ARAO
Bulatlat.com

Analysts argue that elections are good for the economy since candidates and political parties tend to spend more, resulting in increased profits for establishments like printing presses, public relations, advertising and media outfits. This will boost employment, albeit temporarily, as these establishments will function at full or even beyond full capacity. 

In addition, there will be more income-generating activities for jobless people.  Some individuals can take on election-related jobs like distributing election paraphernalia, pasting posters, and acting as captive audiences (or hakot in colloquial Filipino) during rallies. Others are only required to vote on May 10 for particular candidates in exchange for cash.  These, in turn, will supposedly increase the capacity of the ordinary Filipino to purchase goods and services as a result of their added income.

Does all this mean that during the campaign and election period more Filipinos will be able to buy or have access to basic goods and services?  Based on latest data from the National Statistics Office (NSO), the continuing increase in prices of goods and services since 1994 clearly offsets whatever increased amount of money a person may have at this point.

In early May, the NSO reported a 4.1 percent increase in the inflation rate for April 2004. The previous month saw an inflation rate of 3.8 percent. According to the National Economic and Development Authority (NEDA), the most recent inflation rate was due to increased prices of food items, resulting from “rising cost of feeds, which livestock and poultry growers passed on to consumers.”

What was not shown, however, was the state of purchasing power of the peso (PPP). Since 2001, the real value of the peso has significantly dropped. (See Table)

Real value

Real value refers to the actual value of money measured by the amount of goods and services it can purchase compared to a given base year. In terms of the consumer price index (CPI), which is the basis for computing the PPP, the administration uses 1994 as base year (though it is now in the process of re-basing the index to the year 2000).

To illustrate the point: In 1994 a person with P100 ($1.80, based on exchange rate of P55.68 for every US dollar) can buy 10 kilos of rice priced at, say, P10 ($0.18) per kilo. In 2004, he or she, with the same amount of money, can only buy five kilos of the same quality of rice since the latter’s price has increased to P20 ($0.36) per kilo. This means that the real value of P100 ($1.80) declined to only P50 ($0.90) in 2004.

In Metro Manila, the PPP in April 2004 amounted to P0.5549 ($0.01), a seven-centavo reduction ($0.0013) compared to the same month in 2001. Those living in the Cordillera Administrative Region (CAR) and Southern Mindanao were slightly worse off since they experienced an eight-centavo drop ($0.0014) from April 2001 to 2004.

The Autonomous Region in Muslim Mindanao (ARMM) had the lowest PPP with P0.5003. This means that its minimum daily wage rate of P140 ($2.51), already the lowest in the country, is actually worth only P70.04 ($1.26).

If the expected increase in income of the ordinary Filipino, during the election period, will not necessary translate into an increase in his/her capacity to buy more basic goods and services, what more is in store for him/her when the economy reverts back to its normal conditions of crisis and lack of employment opportunities?   

With the state of the people’s buying power, if the victor in the presidential elections on May 10 is sincere in uplifting the lives of the ordinary Filipino, s/he should have the political will to grant the demand for a substantial wage hike. Equally important is the institution of price controls particularly on basic commodities and services in order to arrest the precipitously eroding purchasing power of the peso. Bulatlat.com

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