⌛ Living in the Phil. is getting more expensive

I wonder about the sustainability of an economy that is increasingly dependent on foreign remittances. What is there in the Philippine economy that justifies increased core inflation at the same time food and fuel are rising? It should be that if consumers are spending more on food and energy there should be less money available for other products thereby keeping those prices from rising rapidly. 7.6% inflation not including food and fuel seems unjustified and, in my opinion, is only occurring because many families receive money from OFWs.
The Philippines is not increasing it's export/manufacturing base which is the basis of true economic growth. Additionally, the best and brightest Filipinos are going overseas for jobs which does not bode well for innovation and development at home.
To me, the current situation seems unsustainable in the long run.

 

I hope we don't wait too long for the peso to go back where it belongs! 75pesos:1 USD.

Yes this OFW is being used by the gov't. If it wasn't so sad, it would be funny--as in Jay Leno one-liner funny.

 

Strong peso

Well if you have your income in USD it might be nice to dream about a 75 peso/USD exchange rate. But I think for the foreseeable future, it will be only a dream, since the US obviously has its own economic problem.

The EUR/USD exchange rate is hovering just below 1.50 without any signs, that it is about to turn around and go lower anytime soon, and a 75 peso/USD exchange rate would for sure require not only a weeker peso but also a much stronger USD.

I agree though, that it is somewhat worrying and seems a bit unsustainable, if the peso is rising only due to remittances from OFW´s. I don`t know, if that is the case however. I think there are also some investment inflows, and that in fact would be a good thing for the country. Particularly if we are talking about direct investments and not "hot money" investments in e.g. the stock market.

Still I also can not help to wonder, how much more strengthening of the peso the Philippine economy can endure without hollowing out the export/manufacturing sector, even more than it already is. The peso has risen substantially in the last few years, not only against currencys like the USD or the euro, but also against the currencys of direct competitors like China, Malaysia, Singapore and many others. In fact in 2007 the peso was one of the strongest currencys in the world, and it went up against the euro, whereas nearly all other currencys in the region went down against the euro.

This seems somewhat out of line with the nations actual economic performance, which has not been that brilliant compared to its competitors. But maybe part of the reason is, that most other SE-asian nations manage their currency exchange rate, whereas the Philippines does not.

 

Hi All;
Inflation can be defined as increase in prices and fall in value of money. Assuming that inflation in the Philippines remains the same when the value of Peso rises against foreign currencies then we could safely conclude that life in the Philippines greatly improved now. So it does'nt matter if your means of living coming from abroad as the Peso exchange has more buying power unless the inflation rises also when the value of peso increases.
Thanks!

 

Do you believe that is the case? It appears core inflation exceeded the strengthening of the peso in 2007.

 

xx

I think Gene had some problems to explain, what he meant. A stronger currency should theoretically make imported goods cheaper, and if that is the case, inflation will be lowered and the standard of living for people, who have income in the local currency, will be improved.

However in this case the "spill-over" from the stronger peso to lower prices of imported goods seems to be extremely limited so far. Just as a single example, the peso price of a bottle of european wine is actually up since 2005, even though the peso is also up by 20-25%. Which should then have lowered the price similarly, since the price of a bottle of wine in Europa is unchanged since 2005, or perhaps even a little bit down. I know, that wine is not an important consumer good in the Philippines, but this is just one example.

The price of breast milk substitute produced by Nestle is also up at least 10% since 2005, even with the benefit of the stronger peso. I recently saw this product in a shop in Denmark, and it is actually about 10% CHEAPER here at the current exchange rate. Boy the philippine population must have a tremendous bying power, since such high prices can be sustained. Or maybe more likely, competition is severely lacking in the market.

People having income in pesos have therefore not had any particularly benefit from the stronger peso so far, and people, who have income in foreign currency, have suffered dramatically from it.

If there is any upside to this, then it is, that it must now be brilliantly profitable to import just about anything to the Philippines, since prices in our market are so high. So if you have the money and skills to do that, please feel free to go ahead and create some more competition in this market.

 

Thanks for that and I understand the point being made now.
Real-life examples of items that have seen unexplained price hikes is beneficial, even wine. Chances are the economic realities of life in the Philippines will not change anytime soon. Sad for the Filipino people who have been putting up with this type of thing for many, many years. For us foreigners, it's good to be prepared. There have been some real horror stories of bright-eyed foreigners moving to PI because the cost of living is so low only to find out they've run out of money. Inflation should always be a factor in your planning.

 

it sure is getting expensive..beer in makati bars is 120p, it was half price in Cebu, even cheaper in Davao, and cheapest in Camiguin..I traveled in that order on my last visit and had a sticker shock when i got back to Manila. I spent over 4,000 usd in three weeks excluding flights which i booked while in the states..what the heck? Yah, Manila is definelty expensive. I tried to budget 2000p per day, but couldnt do it. I am going to give it another shot in May.

In dumaguete, what is the reasonable budget,,,,daily, monthy, etc..? food, transpo, housing, bars, entertainment...I know in makati, the clubs have 500-800p cover charge.

 

Price level in Dumaguete

Dumaguete is considerably cheaper than Manila. A bottle of bear is 25-40 peso in the different bars, and there is usually either no entrance fee or it is less than 100 peso, including one free bear. A meal in a nice restaurant can be had for around 200-250 peso, including drinks. A trip of less than 1 km with a tricycle is 6 peso, if you are willing to share the tricycle with other passengers. If you make a "special trip", i.e. the driver takes you directly to your destination without picking up other passengers on the way, prices are negotiable but of course higher than 6 peso. You can rent a motorcycle for around 200 peso pr. day, if you rent for it for a week or more, or you can buy a brand new Honda for less than 50.000 peso.

A 2-room apartment can be rented for around 5.000 peso pr. month, or maybe a bit less, if you shop around and if you are a sharp negotiater. Hotel prices are 40-50% lower in Dumaguete compared to Manila, for a similar standard.

Prices of manufactured goods are obviously pretty much the same as in Manila, so no savings possible there.

 

lack of competition

Yes that is exactly my point. If planning to move to the Philippines, it is important to realize and budget, that locally manufactured products and services might still be cheap compared to developed countries. However, imported goods are now in many cases MORE expensive than in developed countries, because prices are apparently incredibly "sticky" in this market, when the value of the peso goes up.

And it is not only small items like wine or baby milk either. Car prices in peso are also up since 2005, meaning that new cars are now more expensive in the Philippines than almost anywhere else in the world, if you adjust for differences in taxes and equipment level.

The most grave example of this is the small and popular Kia Picanto. When this car was introduces in the Philippines in 2005, the price was 350.000 peso. At that time, this was equivalent of 36.000-37.000 DKK. Now the price of the same car is 500.000 peso, which with the current exchange rate is equivalent of 62.000 DKK.

The price of this car is thus up by almost 70% in the Philippines since 2005, if you measure it in DKK (or Euro) and even more, if you measure in USD. In Denmark the price of the same car is down a little bit since 2005, AND they have put more safety equipment into it at the same time. This price reduction though is due to a reduction in the tax rate on cars, so the ex-tax price is proberly more or less unchanged.

Still, the balance between bying a Kia Picanto in Denmark (Europe) vs. the Philippines has change dramatically in favour of the former, and I am sure, that if you compare to the US, the situation is even more grave.

Unless the Philippines have hiked their car taxes dramatically since 2005, which I have not heard anything about, then the profit, that Kia earns by selling this car in the Philippine market, has skyrocketed since 2005. This of course is good for the shareholders of the company, but not so good for people living in the Philippines and wanting to buy a car.

Other car manufacturers have hiked their prices somewhat less since 2005, but they are still up by generally 5-10% in peso, and thereby much more when measured in foreign currency. And this is puzzling, since in developed markets, the price of a car almost never goes up after it is introduced. What happen is rather, that as the model gets older, more equipment is put into the car, and the price is then kept unchanged or in some cases even lowered, if sales of the model is unsatisfactory.

I can only conclude, that this situation must be due to a lack of competition in the Phillippine market. A law was implemented a few years ago, that made it illegal to import used cars to the country. I can easily imagine, that after having successfully lobbyed for this law, the big car manufacturers in the Philippines quietly agreed on how to set prices and share the market between them.

Perhaps the recent entrance of chinese producers can create some real competition in the Philippine car market, but I guess we will just have to wait and see about that.