You know, no matter how long you live somewhere, you can learn something new about the place at any time if you just keep your eyes and ears open. Something like this happened to me the other day. It’s something that I had observed for several years, but the light bulb never flipped on, and I didn’t put 2 and 2 together to come up with 4, if you know what I mean.
You see, Feyma and I have observed for years that inflation here in the Philippines is very high. Yet, every time that the government comes out with reports on the economy, inflation is relatively low. I never could really understand it, because it was very obvious that prices were spiraling, yet all reports on inflation didn’t seem to jive with real life. I never could figure out why.
Another thing that I have observed in the Philippines is the way that pricing his handled. Many times, instead of increasing the price on an item, they just keep the price the same, but make the size of the item smaller. For instance, you can tell when the economy is bad when you go eat at a restaurant. Maybe it’s a place where you go regularly, and you order the same items on a regular basis too. Now, when you go in the next time, the entree has suddenly become 25% smaller than it used to be! Maybe they changed to smaller plates, and the food followed suit. Funny thing is, the price is the same!
In the USA, where I come from, generally, if the price is going up on a certain item, they just raise the price. If the package size is 12 ounces and the price is $1.00, they might raise it to $1.19, but you still get 12 ounces. Here in the Philippines, most of the time they will cut the package size to 10 ounces for $1.00 (I am keeping the size and monetary units the same for the simplicity of the argument).
A few days ago, it was mid-afternoon, and I was a bit hungry, so I went to the cabinet and got a pack of peanuts. There is a certain type of peanuts that are spicy, which I really enjoy. I eat a small pack of these peanuts several times per week as a snack, so I am very familiar with the size of the pack, and the price too. When I grabbed the pack of peanuts from the cabinet, I thought to myself – “is this opened? It feels light.” Well, I checked it, and the pack was still sealed. I took a second look, and noticed something different. Along the bottom of the package, it is printed on the package “Net Weight 50 grams.” This was crossed out with a line, though, and a new weight was stamped on the pack in black ink “Net Weight 32 grams.” And, you know what, the price had gone up a bit too! So, I paid a higher price for LESS peanuts!
Finally, I put 2 and 2 together, and I think I came up with 4 as the answer. What I believe is that the government, when tabulating inflation is saying something like:
Small Pack Spicey Peanuts – was P20, now P21 – 5% inflation
What they don’t take into account is that you are getting 36% fewer peanuts in that same size package! So, instead of 5% inflation (based on price), you really have a much higher rate of inflation! Instead of paying P0.4 per gram, you are now paying P0.66 per gram! Although I have no proof that they are doing this, I really feel that this is what is happening. It is the only way that I can come up with to justify how prices rise fast, yet the inflation rate is given as low.
Yeah, it is still relatively cheap to live in the Philippines. But, it is changing, and not for the better. Learning the way things work here is important so that you can live your life appropriately.
What do you think?
Yes! I couldn't believe it when they shrunk the large jar of mayonaise to a third of its original size! I guess the real inflation index is the price of imported items over which they have no control, like Totstitos salsa…
Bob,
Ouch! Feyma observed this in one of her earlier posts as well. It seemed to me, based on what she mentioned, that inflation was pretty heavy there, but I really couldn't find anything official that would confirm that. I wonder how they index things like durable goods (washing machines, cars, etc)? Much harder to pull that shell-game with durable goods, but then again, if those don't make up a large part of the retail numbers in the overall economy, then they could easily be overshadowed by creative food cost indexing. Very interesting post.
Thanks!
Hi AmericanLola – Amazing, isn't it? Such a simple thing to do, yet so deceiving! I am really surprised that I didn't catch on to this earlier. I always knew that sizes were shrinking, but never realized that (I believe) this was a reason why the official inflation rate was kept low. I honestly believe that this is what is going on.
Hi RichardInSC – Take the high inflation, and throw in the incredibly shrinking dollar and you've got a double whammy there! Durable goods like you mention do go up in price too, but they are a tiny part of the economy. Few people own cars or washing machines – they ride jeepneys and wash clothes by hand. TV sets? Most people who have one have a tiny one, and the majority don't even have one. Food is the key part of the Philippine economy, and playing games with food pricing could have a huge impact on the index as a whole.
Hi,
the government here use different ways of giving the inflation figures depending on what looks better. For many years it has been on groceries as the prices of these actually went down for a while. Goods are also cheaper as more stuff comes in from China. Meanwhile prices are going through the roof in other areas, houses and fuel especially.
I also noticed the smaller food portions when I was there last time.
Phil
Hi Phil – I agree that almost all governments use creative methods when calculating things like inflation. When a certain class of products gets hit with inflation, many governments will magically remove it from the inflation index. However, most governments at least calculate inflation on a unit basis, where you get a certain number of grams or ounces of peanuts for a certain price. And, let's face it, in most developed countries, they don't just keep making things smaller to mask the increase in price.
It is important to understand that the underlying engine of iinflation is the country's central bank. Like the U.S. Federal Reserve (which is neither federal, inasmuch as it is privately owned by a small cartel of wealthy families, nor a true reserve, inasmuch as it has no gold or silver or any other inherently valuable commodity to back the currency), the Central Bankers have been given unchecked power to create "money" and credit out of thin air – just like conterfeiting. They produce no goods, they create no wealth; they have nothing of value in their reserves. They just run a printing press or simply enter digits into a computer. Then they loan the freshly printed currency to the government and charge interest. We should note that this debt plus interest on is ultimately borne by current and successive generations of taxpayers.
We must also understand that in time this inflation of the "money" supply dilutes the purchasing power of the currency already in existence – that is to say, additional pesos are infused into the economy faster than the supply of available goods and services are increased. The time lag between the cause – monetary inflation – and the effect – price inflation – provides the initial recipients of the newly created "money" – those in power and their corporate and political friends – an opportunity to buy tangible goods and natural resources before prices go up, thereby procuring wealth at the expense of wage earners, fixed pensioners, and savers. This process of transferring value from the many to the few is a form of stealth taxation and makes it more and more difficult for people to save a portion of their income and work their way up and out of dire circumstances.
My humble attempt at explanation oversimplifies the problem, but I hope it makes the point that we should be careful not to blame "greedy businessmen" or "stingy merchants" or "unscrupulous farmers" – not that you were suggesting we should. However, eventually the government will be searching for scapegoats and, when they do, we must avoid joining the chorus.
We can also understand why government bureaucrats fabricate their economic statistics. For the ruse to work, they must hide what they do as long as they can. With the partial exceptions of countries like Switzerland, Singapore, and the Cayman Islands, government-enforced central banking and unredeemable, unbacked fiat currencies pevail worldwide. Eventually the system will implode, probably through hyperinflation and subsequent depression
And by the way, my comments pertain to what I regard as essentially socialized banking and the corporate welfare state. It is not an indictment of true free market capitalism in which working and entrepenuerial folk exercise their natural right to use whatever medium of exchange they desire (for a number of reasons – the subject of another discussion – this almost always has been gold or silver historically) and in which prices tend to drift downward with increases in productivity and technology.
Anyway, that's my rant. Thanks, Bob, for your good work.
Unfortunatly the prices are going up in the States to Bob. You would probubly do a 'u' turn back the airport if you came back. I understand its all relevant but when I go from here to there I still find it a heck of a bargin !
brian,
I live in the US and I don't think the CPI is going up that much at all. There is always inflation, even when it's very low, but I think comparing 'doing a u-turn at the airport' with the cost of peanuts doesn't quite work. Oil just touched $100 a barrel today, so I think that has something to do with the Airport situation, but that is global, not specific to any country. I haven't priced peanuts in the US lately, but the US CPI is a pretty good gauge of relative price increases and it hasn't moved that much in the last 12 months. Food is up 4.8%, but that is pretty low anywhere in the world. Energy is the big one, but that is hitting everybody. Heck, rather than me talk about it, I'll just put it here so everybody can read it:
http://www.bls.gov/news.release/cpi.nr0.htm
The Philippines is probably still a bargain today, but I think Bob is saying, keep an eye on it.
Regards,
Richard
Sorry, I should have said food is up to 5.3% rate in November 2007, compared to all of 2006. Anyway, that's why I posted the link 😀
Hi Bob, we observe the same. But not only portions getting smaller, additional prices go up. Just being back from grocery shopping in a mall in Davao City, we got shocked about increasing prices. Things like milk, cheese, joghurt, butter etc. have already European price standards. Brian (#6) is right. My Germans friends told me exactly the same. And if I watch my German TV channel Deutsche Welle, I can't believe sometimes the reports regarding inflation in Germany i.e. – How comes that more and more German friends tell me, that it was a good decision to move to the Philippines for good?
Hi Rally – I just want to be clear that I am not blaming anybody, but simply just telling what the situation is. Thanks for your comment!
Hi Brian – Thanks for your comment too! I guess that I am not complaining about the inflation, but commenting more about how inflation is calculated and the difference in the way things are done here compared to other places I have lived. I do agree wholly that inflation is happening in every country of the world.
Hi RichardInSC – 4.8% is a pretty healthy rate of inflation, really. You are right…. what I am saying is that inflation is a factor here, and the way it is being calculated is tricky, so it is something that should be watched.
Hi Klaus – Ha ha… you are right, imported goods are the worst by far! With the strength of the Peso, the increase in foreign goods prices should be kept to a minimum, but it is not.
Least we forget, it will all come full circle eventually. Money, Life , Food, Necessary Things and Luxory Items, they are all like a roller coaster ride, they will go up and they will come down. Each of us should look at the history of our respective Countries and the history of paridise (Philippines) and take note to just be patient and live each day with good common sence in our daily spending and we will come out back on top again, but only to go up again. So try as best as you can to prepare for these down times, we need the down times to be able to really appreciate the good things in life.
Hi Micki – Thanks for giving us a shot of optimism!
Well, I won't say that shrinking the product doesn't happen in the States… Remember how big a 10 cent Hershey bar used to be? They reduced the size of those and many other candies before raising the price. Now, they are short, thin and expensive!
But in the long run, it is still a lot cheaper to eat in the Philippines, especially if you don't eat a lot of imported or processed foods.
Hi Bob The peso is overvalued which does not bode well for exports put should mean that any imported products should actually come down in price. Ifthis is not the case than it is acase of excessive profiteering.Imentioned on Klaus blog yesterday . when in Davao last February at sm city igot 48.8 pesos to the us. when iarrive the end of this month i will be lucky to get41.surely this must be reflected in a decrease in price on any product that is imported.The philippines has very bad inforstruture to attract tourists combine this with an over valued currency does not make the country attractive to any potentaly tourists. back in february the peso was plus/ minus 93 to the pound now we are looking atless than 82 to the pound.families of cverseas workers must really be taking strain. same dollars less pesos combined with high in flation.The poor just get poorer and become hungry.
Hi AmericanLola – Well… I do agree about the shrinking product does happen in the States too… but the 10 cent Hershey bar was what…. 50 years ago? The changes in size here happen overnight in many cases. But, you are fully correct that almost everything here is much cheaper than in the USA. Some things, like tech products are cheaper there too, though….
Hi Frank – I will promise you… no imported items have come down in price since last time you were here! Expect to see prices on imports to be quite a bit higher than a year ago.
dear bob, i have seen 1000 peso at 17.00 usd and today that same 1000 peso is 25 usd. for thows of us who that are making property payments in the philippines , thats a big increese.some times i feel we are being cheeted following the peso.
Hi jerry smith – I hear you! Keep in mind, though…. it's not following the peso that is cheating you… it's holding US Dollars that is cheating you! US economic policies are allowing the dollar to fall like a rock against nearly every currency in the world. By the way, when I first came here to the Philippines, P1000 was equal to $52.63. Now, that is a big difference! I hope we don't go back to those days again! 😆
Just remember everything is a pendulum, it swingsone way then it swings another. My wife and I have been talking about money lately and she made a pointed question when she asked me "I can live on bagoong and rice… can you?"
Hi Louis – Glad to see you back online! I hope your move went smoothly.
Yes, you are right – we can all live on bagoong and rice. Physically there is no reason why anybody can't live on that. The question is, though… do you want to live that way? I, for one, am not willing to let my family live like that.
Interesting observations, Bob, except I can't agree this is aPhilippine phenomenon. One of the 'traps" of living overseas for along time is, you don't always realize how much the US has chnaged.
Mita and I shop once a month or so at a membership store in Quezon City called S&R. They are a rough imitation of a SAM's Club or CostCo in the US. They stock many US-made items.
One of the things we always buy is 3 pound or 5 pound cans of name-brand US coffee. I was there a few days ago. Guess what? All the three pound cands are now 2 pounds six ounces and the five pound cans are four point something. US-packed soft drinks which should be 354 ml … 12 ounces are now often 330 ml, toothpaste is smaller as were a number of other items we were shopping for in the US only 14 months ago. I think it's a world-wide trend.
Hi Dave Starr – Ok… it is really interesting to hear of your recent shopping experience! Actually the biggest thing that shocks me is the 330 ml drinks, because US cans of pop have always been 12 ounces in my memory, so this is a big shift. It sounds like this is indeed a current trend in the USA too, although I would be looking for a little more confirmation before accepting that. But, I am tending to think that it is the case, though. I will say this…. it has been going on like this for years here in the Philippines… maybe we have found something where the Philippines is a leader in! 😆
Some reading materials regarding inflation in the Philippines:
http://www.gov.ph/cat_economy/Official_Core_Infla… http://www.gov.ph/cat_economy/Primer%20Core%20Inf…
So it's not just a random guy selecting random numbers. The question is though, if we are to believe the data gathered that are input to form the numbers.
Hi Dex U. – Please note, I never said anything about a "random guy" or about "random numbers." I don't believe that at all.
Also, though.. I not believe that the Government quoted numbers are accurate. I'll say the same for the USA. The inflation rate there is supposed to be about 3%, I believe it is higher than that.
Hi Bob. Sorry, I don't mean to imply that you were saying the numbers were random. I was kinda saying that to myself, as I was surprised to actually find some info regarding inflation in the Philippines when I searched for it… btw, I tried to read it and it just gave me a headache.
Hi Dex U. – OK, thanks… I understand. Ha ha… legalese always gives headaches!
Actually the move could not have gone smoother and I love the new house. The El Rio jeep/multi-cab comes right by the house so I can get around better than at the old place. I also hedged my bets on a further dollar decline and paid for the whole year at one time… I was able to get a 1 month discount and paid with pesos I had bought when it was 45 to the dollar. Internet finally came in today and I have to say I prefer DSL to ZpDee.
Bob The falling dollar hurts both expats and Philippinos recieving money from the states but inflation hurts everyone and the philippino making seven dollars a day will need a pay raise to keep up.So unless Philippinos are buying goods from the U.S.the strong peso has little affect.
Hi Jim – seems we are in agreement. When I mentioned the strong Peso, I was specifically talking about Philippine businesses buying and importing foreign goods.
Hi Louis. Welcome have not heard from you for a while.
Hi bob your article it's very good.The inflation rate there is supposed to be about 3,8% in greece speeak the greek
government But I believe it is higher than 3,8% in greek supermarket the price make up 25% in merry christmas. The euro it is higher than american dollar and hear
in greece we be afraid the pozition of the american dollar.
Hi Louis – I'm glad that the move went well! Great move on the Dollar/Peso exchange!
Hi zois – There is certainly economic turmoil in almost every part of the world as we start off 2008!
Bob,
I have to admit, I think I've learned something about the Philippines from this column as well. There is clearly something magical about the place that captivates expats who live there. I've actually known this for some time now just reading this blog. No, this is not a criticism of any kind.
But I'm pretty sure, based on the responses here, that I know that for many here, they would live in the Philippines if the inflation rate was 1000%, if they could find a way to manage it. There is some kind of voodoo about it that must be very enticing. When I hear the constant refrain (and yes, even you must admit it) that 'sure, things are getting tight here, but it's getting tight everywhere', then I know there is something to my idea.
I'm just curious about the need to economically justify it though. You have been very honest and forthright about the difficulties of moving there permanently, yet, at the same time, one of the biggest selling points seems to be how inexpensive the way of life is. I seriously doubt, not matter what happens in the rest of the world, it will stay that way. So, there must now be much more compelling reasons to want to make this a permanent home. Well, you've covered many interesting and compelling reasons, outside of the economic benefits before, but I wonder where the line is?
How far would you, or anybody else who reads and comments here, be willing to go to stay there and why? Again, I know I come off as a critic of the place sometimes, and I do think I make a good point every once in a while, but I also see a lot a great aspects there as well. But, and I hate to say it, economic reasons are starting to play a much smaller part in the calculation.
Pretty silly question, but I think it's interesting.
Regards,
Richard
dear louis , you are so true.i complain about the falling peso but we also have investments in the philippines that will be paying us back at a higher dollal rate.for some the pendulum does swing bouth ways. thank you
Hi RichardInSC – Well, I think that within our lifetimes the cost of living here in the Philippines will be less than it is in the developed world. There is little doubt in my mind about that. It was not the cost of living that brought me to the Philippines, though…. what brought me here is opportunity. I kind of look at the Philippines as what the US was a Century or more ago… a "Land of Opportunity." Here in the Philippines you can get into a business with much less hassle, less investment and such compared to how the USA is today. And, I must be honest that I have been able to do well in this society. In terms of earnings…. I make more here than I ever did in the USA, and I don't work as hard as I did there. I just love this place, and I will always live here.
Hi jerry smith – Keep in mind… the Peso is not falling! The Peso is GAINING. The value of the peso is getting higher and higher. It's sometimes kind of difficult to make the connection, but the lower the Dollar-Peso rate goes, that means that the Peso is worth MORE! For instance, a couple of years ago One US Dollar would buy 56 Pesos. Today, the Peso is worth a lot more, and One US Dollar will buy only about 41 Pesos, because the Peso is more valuable than it was a couple years ago. It is the Dollar that is losing value, and falling almost daily now.
It's really hard for Americans to grasp the dollar falling, isn't it? Even Filipino friends will still say to me, "Oh lucky you, to be earning in US dollars."
here's a sample that will drive the message home. I bought a car just over a year ago for abt 800,000 Pesos. At the time I closed the deal that was about $17,000 USD.
We all know new cars depreciate, as does the amount the insurance company will pay you for a total loss. When I renewed my insurance last month, the max payout was specified as 720,000 pesos. If My car was totaled today that means the insurance company would pay me the equivalent of $17647 USD … much more than I paid for the car new … talk about a weak dollar, the dollar is depreciating faster than a used car.
Of course, to buy the exact same car new today would cost a fraction over $20,000 USD … but hey, I could always go back to riding tricycles.
Hi Dave Starr – Yep, for an American…. in terms of the Philippine Peso, our currency has been on the rise as long as I can remember, so getting used to the reverse can indeed be confusing. If I remember correctly, you own a Mitsubishi Adventure. That's also what I drive, although mine is older (a 2000 model). When I bought mine, I paid US$14k for it, and it is the top of the line model with every option available. Imagine, it's about double the price in USD now!
Bob, this is off the goods and services inflation talk but I was wondering if Land is really around $1000 pesos square meter in US dollars around the little poor villages along the coasts. Along a concrete road and close to but not on the beach? Your input would be greatly appreciated as I have hopes of buying a plot for my filipina and her mom and tatay, but it is quite high for my middle class salary.
Sorry for the lousywsy wording in the above post Bob. I meant 1000 pesos per sq. meter and scrap the us dollar part . Sorry!
Man,I did it again with poor spelling! I guess thats what I get for violating company policy here in wyoming by doing this stuff.
Hi John Huston – P1,000 per square meter is dirt cheap! There is plenty of land in Davao that is P8k to P10k per square meter! We bought land in Samal Island last year, and paid P850 per sq. m and considered that to be very cheap! On Samal, land on the beach is more like P2500 to P4000 per square meter.
Yes Bob I do have an Adventure … GLS Sport, not the very top line but well equipped, been very happy with it so far. I've wanted a diesel car for years, finally got one and I love the low-end torque and the suoper economy while idling .. which, of course we do a lot of here near the big city.
I'll second your pricing judgment on John's query … 1,000 per sm meter if pretty cheap in today's world, on a concrete road near a beach it would be unbelievably cheap … and you know what they say about those things that are too good to be true…..
I've been amazed for years at the price of raw land in the Philippines. I can see why it would amaze someone from Wyoming … it's so different here, in that there just isn't that much land in the first place, and huge amounts of land are under the control of the 'six families' and will never be on the market … people think of the Philippines as a poor country, so they expect things to be cheap … but they forget there are (a few) fantastically rich people/familes and they own a _lot_.
Hi Dave Starr – I've got the gasoline engine, and I am quite happy with it. For a car in this price range, I have to say that Mitsubishi does a real nice job! My vehicle is almost 8 years old, and I have not had a major problem with it. I have had a few recurring minor problems, but that is to be expected.