Cost of living crisis traced to high prices, low wages

The unstoppable rise in commodity prices and the failure of wages to keep up with household’s needs have resulted in a “cost of living crisis” in the region, according to the United Nations Economic and Social Commission for Asia and the Pacific (Unescap) in a recent blog.

But then again, such cost of living crisis is not unique to the Philippines and other developing countries but throughout the world, even to richer nations.

UNESCAP Economic Affairs Officer Shuvojit Banerjee said, however, that governments are not helpless in terms of addressing the crisis through greater social protection for citizens, reported Business Mirror.

Banerjee said social protection measures include those that help contain price increases; targeted assistance for the most vulnerable citizens; and the need to increase fiscal space for development spending.

“This cost-of-living crisis since the onset of the war in Ukraine in 2022, particularly for food and fuel, is eroding purchasing power of people in the region and exacerbating poverty and inequality concerns, which came to the fore with the breakout of the Covid-19 pandemic in 2020,” Banerjee said.

“Despite recent declines in inflation, high prices of essential goods and services continue to strain the livelihoods of the region’s poor and vulnerable, exacerbating poverty and inequality,” he also said.

In containing prices, Banerjee urged the provision of “timely and appropriately tight monetary policy” to prevent any spikes in inflation by anchoring inflation expectations.

The Bangko Sentral ng Pilipinas (BSP) recently reduced the country’s key policy rates by 25 basis points to 6.25 percent. BSP Governor Eli M. Remolona Jr. earlier said the reduction in policy rates will be “measured” and calibrated to prevent spikes in commodity prices, the newspaper reported.

Banerjee also said targeting the most vulnerable can be done through measures such as food coupons and unemployment benefits to mitigate the immediate impacts of rising prices.

These programs, which require fiscal resources from the government, can be financed through the introduction of policies such as wealth taxes and improving efficiency in public spending.

A global study earlier found that 3.6 million people have over $5 million in wealth, with a combined wealth of $75.3 trillion and 183,300 households own over $50 million, for a combined wealth of $36.4 trillion. There are 2,660 billionaires with a total combined wealth of $13.76 trillion based on Forbes as of November 30, 2021.

“By prioritizing inclusive growth and equitable development, governments can mitigate the impact of high prices, safeguarding the well-being of their populations and promoting long-term prosperity,” Banerjee said.

Earlier, the latest study by TransUnion showed that Pinoys expect their spending on various household bills and loans to increase in the next three months. 

The TransUnion survey results showed that nearly half of households have already cut back on their discretionary spending such as dining out, travel and entertainment in the second quarter.

In the second quarter, household final consumption expenditure grew 4.6 percent, the same rate posted in the first quarter. Outside of the pandemic, the rate is the slowest growth in household spending in 14 years.