It’s a great feeling isn’t it? P50 for every dollar! Imagine, just a year ago, the dollar was only worth 40 Pesos, and now we have made a huge jump back to P50. We are not all the way back to where we were a couple of years ago, but it seems to be headed that way. Remember, we peaked out at a little over P56 to the dollar. As far as I can recall, we never quite made it to 57, but we got into the mid-56 range before the bottom fell out.
So, indeed, we have been here before. This is not new territory for us. But, we should not forget that even when the dollar was at it’s peak, things were not rosy. The falling peso does create some inconveniences for us expats too.
How is it bad? Let’s think back and see.
When the Peso was this weak before, the prices of imported products skyrocketed! Of course, how could those prices not skyrocket? After all, when items are imported from abroad, they must be paid for in foreign currencies, usually the US Dollar. It is more expensive to buy those dollars now with pesos, so that makes the price of the import higher for us.
In fact, I believe we are about to see a “double whammy” when it comes to import prices. How? Let me relate a little story about a particular import that I used to enjoy several years ago. It was a bottled juice which was imported from the USA. They had all kinds of flavors. I particularly enjoyed the cranberry juice and the grapefruit juice. Those are two types of juices that you cannot get a local equivalent of. There are lots of good juices here in the Philippines – mango, pomelo, pineapple, etc. – which are all locally harvested and produced, but some of the juices that I drank regularly for most of my life are not available here, and I enjoy having some from time to time. So, if you want some cranberry juice, you buy an imported product. On this particular brand of juice, it came in a 1.9 liter bottle. When I first started drinking the stuff it was just slightly over P100 per bottle. It rose dramatically as the peso declined in value. I remember one time when a bottle of this juice was P150 per bottle or so, and in two weeks time we went back to buy more from the same store, and it was P220 per bottle! That is nearly a 50% price increase in just two weeks. When it hit P220, I decided that it was a luxury item that I could do without.
Back when the Peso was at it’s weakest, we pretty much decided to give up on almost all imported products and chose to go for local products as much as we possibly could. Economically, it was simply the way to go. On some products you would give up a bit of quality by doing this, but in most cases there was not much difference.
As the peso gained strength over the past 2 years or so, a funny thing happened. Prices of US products did not drop. Logically, it would seem that these imported products were now cheaper to buy for the merchants, since the peso was worth so much more, so the retail price should go down. It never did, though. That P220 bottle of juice stayed at P220 instead of going back down to P150 or so. I mean, if a product costed $1 for a Philippine company to import, that means it used to cost them P56, and then it only cost them P40, so selling it in Pesos should have reflected a lower retail price too. They didn’t lower the price, though, electing to take a larger profit instead.
Now that the Peso is at 50 again, do you think that prices on imports will go up more? I think that it’s a virtual certainty. That’s why I am calling it a “double whammy” – because the import prices were already adjusted for a Peso at 56, never brought down, and now will be adjusted upward again!
So, yes, overall, I am very happy that the dollar is regaining strength against the peso. But, don’t forget there are downsides too. Luckily for us, we don’t use many imported products any more, so we won’t be greatly affected. It’s something for you to watch out for if you live in the Philippines and use a lot of imports.