Street Talk: Reactions of Philippine Residents to the current surge in consumer price Inflation rates
-We cut off our family Sunday dinners in restaurants. I seldom spend on clothes, since I get these from my relatives abroad. I stopped buying accessories and pieces of jewelry. We now skip buying treats like pizza and ice cream.-We changed our shopping habits. Before [prices rose], we would go out on pay day. Now, we stay at home during the weekends and cook two kilos of fried chicken every pay day.-I reduce my costs by not shopping for women’s luxuries, like accessories.-I concentrate on basic needs. Traveling is no longer a necessity but a privilege. In the 1990’s when I was studying, the jeepney fare was 1.50 pesos. Then, while I was in college, I spent 6 pesos daily. In the past, price increases were not drastic. Today, we are experiencing price fluctuations.-Buying new clothes and accessories are costly and unnecessary. I decided to stop buying those.
Given that the Philippines has been relatively significantly less productive economy (as revealed by the huge informal economy and the lack of depth in both formal banking and capital markets) the average populace are likely to be more prone or highly sensitive to price inflation compared to her much wealthier neighbors.Price increases in energy, food, rentals and transportation will effectively reduce the average resident’s disposable income as spending will be diverted to essentials. This is the income effect.And should there be residual disposable income, rising prices may impel the average consumer to conserve resources by switching into the more affordable alternatives. This is the substitution effect.Sustained price pressures on basic goods would imply that the forces of the income and the substitution effects will increasingly come into play.
Soaring property prices combined with accelerating consumer price inflation in food that has spread to a broader base of consumer and even to producers goods (e.g. cement as shown signs of increase in black market activities) will serve as a lethal cocktail mix to the “this time is different” credit financed boom. The adverse impact will not only affect demand but likewise negatively impact incomes (jobs), earnings (profits) and eventually asset valuations.
The same forces will expose on the myth of the supposed “transformational” Philippine consumer economy which has underpinned the Shopping mall bubble.
Source: http://prudentinvestornewsletters.blogspot.com/2014/06/street-talk-reactions-of-philippine.html
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