Philippines Flag

Philippines – Inflation on the Rise

As the months pass, Filipinos have been on the watch since the TRAIN 1 (Tax Reform for Acceleration and Inclusion) Law was implemented. Nowadays, mornings are greeted with news that the Philippine Peso has further weakened and the inflation rate has yet again escalated. Data shows that inflation jumped to an over 9-year high of 6.7% in September of this year. It is projected to escalate to 7% at the end of Q3 2018.

Philippines Inflation Graphic

The last time inflation hit this bad was in February 2009. Not only is it the highest in 9.4 years, but the highest in all of ASEAN. The image below shows that Vietnam’s inflation rate as of July was only 4.5%, Indonesia at 3.2%, Thailand at 1.5%, Malaysia at 0.9% and Singapore at 0.6%. Needless to say, the Philippine Peso is also one of the weakest currencies in the ASEAN region today.

Philippines Inflation Chart vs ASIAN Countries

Inflation is always a mix of international and domestic factors. This, with the weakening peso, recent surge in international oil prices, and the higher excise taxes imposed on goods and services since TRAIN 1 in January 2018, Filipinos can only hope that the government be in control and take the necessary steps to arrest or mitigate the inflation.

Personal income taxes in the Philippines have been lowered even exempting those with an annual income of PhP250,000 and below (TRAIN 1). However, with the weakening currency, and the escalation in prices of consumer goods and services, the increase in the local’s disposable income did not necessarily help in the Filipino’s spending / purchasing power.

Mang Juan, the Filipino, now needs to pay more for the same goods and services he’s been consuming daily. On the production side, there are fewer goods or production diminishes due to the high cost required to produce while the demand remains high (or the same).
As the inflation rises, the value of the Peso diminishes more quickly. Peso to a US$ is now at PhP53.73 or within the PhP54 range.

How does this affect the assignees inbound the Philippines as well as their sponsoring/host organizations?

Allowances accorded to inbound expatriates are adjusted thereby supporting the expatriate and their family to afford living in the Philippines. The adjustment protects them from the increased costs that may be attributed to inflation and diminishing strength of the currency among others.

  • Cost of Living Allowances are subsidized to ensure expats and their family is able to afford the goods and services, and live comfortably.
  • Housing and Transportation Allowances are likewise adjusted to ensure that expats are able to afford safe, secure, and convenient housing accommodations and means of mobility for the duration of their assignment in the Philippines.
  • The Location Premium or Hardship Allowance may also be adjusted due to the difficulty of not just having to move to a new country but also to the challenges that may arise in-country.

Depending on the strength of the home country currency, one will either see an increase or decrease in their allowances.
As companies subsidize the allowances of assignees, one will naturally see either an increase or decrease in the assignment cost, where applicable. If it becomes too expensive to send an expatriate into the Philippines, one can also expect a decrease in inbound assignees especially those in topmost managerial executive positions or foreign employees being placed on a local package.

Sources:
https://www.rappler.com/thought-leaders/211285-analysis-reasons-philippine-inflation-now-highest-asean
https://tradingeconomics.com/philippines/inflation-cpi
https://www.philstar.com/business/2018/10/02/1856629/philippine-inflation-seen-soaring-above-7-percent-entire-q4
http://cnnphilippines.com/business/2018/09/28/bsp-dof-september-2018-inflation-forecast.html
http://www.bsp.gov.ph/publications/regular_inflation.asp