Business papers burp with all sorts of economic indicators almost every day. Inflation, trade reports, Treasury bill rates, gross international reserves – those are just some of the staples within the business section.
Take inflation, for example. Reports last Monday showed that annual inflation slumped to a 20-year low of 2.2 percent in March. If you’re watching personal finance closely, this is probably one of the most important figures you have to follow because impacts savings, investments and personal expenditures.
I remember struggling to make this story more understandable to ordinary Filipinos. Rushing back to the newsroom after interviews at the NEDA one day, I started talking to the taxi driver who deftly wove in and out of traffic as he drove me back to the office. Oh, he had a clear grasp of what it was, it didn’t take me more than a minute to explain that it was all about the rise in consumer prices. He said something like: “Di ko naman yan nararamdaman eh. Dati sa isandaang piso ang dami mo nang mabibili, ngayon ilang galunggong na lang yan.” (I don’t feel that. Before, P100 can already buy a lot, but now that’s just a few pieces of fish.)
Photo credit: AFP
Doubt. That’s usually how most people react to big bold headlines that say “20-year low.” Former NSO Administrator Tomas Africa told me how painstakingly the NEDA-attached agency arrives at the figure. NSO sends out hundreds of its people to go to wet markets and grocery stores across the country every month to check prices. This army of number-crunchers look for consumer items included in a basket of goods used by those nearest the poverty threshold – which is around half of the Philippine’s entire population.
Check prices, go back to the office, punch the numbers in a computer and they arrive at a consumer price index. The increase in this index month-on-month and year-on-year, meaning compared with the prior month or the prior year, is called inflation. Business papers highlight annual inflation over monthly inflation. Even Former Socioeconomic Planning Secretary Solita Monsod who is never squeamish about criticizing government told me once that she did not doubt inflation data.
So why can’t we feel this low inflation in our wallets? Curiously, people I talk to assume that if there’s low inflation, prices should stay more or less the same. Inflation is the rise in prices, so naturally our P100 now will never be able to buy the same amount next year as long as there is inflation.
Second, the basket of goods captured by inflation measurement is most likely not the same basket of goods that you and I consume (and don’t capture the same brands). NSO does not have a separate inflation figure for middle-income groups and expats– that’s too expensive to do.
As far as savings and investments are concerned, you all know that because inflation shrinks every peso you save, you have to beat it. Malaya Laraya, RFP said it much more eloquently: say your P100 today can buy a Big Mac. Next year the same amount will most likely not be enough to buy the same thing.
That means if you go for super safe savings for the long-term that only gives 2% return, you lose to inflation the moment you deposited money. It’s best said in Filipino: lugi. It’s like paying the bank to keep your money for you. When you get your money back, you get an amount that’s much smaller in value.
Every serious investor tries to beat inflation. Look for something within your comfort zone that will grow your money much faster than the rate by which inflation shrinks your savings.
If you’re an economist or an experienced investor, you probably got bored just now. Here’s where you come in, which investments allowed you to beat inflation? T-bills and bonds are also extremely low these days.
Last Monday, the benchmark 91-day T-bill rate fell to a new record low of 2.86 percent. Banks have been trying to push short-term rates up but National Treasurer Omar Cruz knows them too well. He is threatening to stop issuing short-term government securities.
I expect that investors will be scrambling for better alternatives these days, and these could push funds into stocks and real estate, both of which had a great year in 2006.
Dr. Noet Ravalo advised a newbie investor in his column this week how to choose the right mutual fund, saying mutual funds are not one-size-fits-all instruments. You have to find the one that suits you, hopefully to a T, he says.
Citibank’s personal finance series also helped a reader understand if she and her husband should give up on their dream home, because their savings have not grown as much as they expected.
Reuters came up with a very interesting story on economic indicators in Asia. “Asia’s economic sleuths hunt for clues in odd places” read:
“The truth is out there — but economists in Asia have to look in some strange places to find it.
Faced with irregular, sometimes dodgy economic data, analysts turn to cement sales, fast food, newspaper sizes or just about anything that helps them understand the fast-growing and often volatile region.”
In the Philippines, some economists have turned to fast food sales to gauge economic activity:
“In the Philippines, whether you are the president or the dispatch boy, Jollibee is part of your life,” said Song, an Asia economist for more than two decades.”
Making sense of business news is not as hard as many people think it is. 
April 19th, 2007 at 4:18 pm
Pag-ibig rates:
Loanable Amount
6% P300,000 and below
7% P300,000 - P500,000
10.5% P500,000 - P1,000,000
11.5% P1,000,000 - P2M
There’s a surcharge of 2% if the loan is delayed. Here’s the website for more info. They also an on-line calculator to estimate amortizations.
http://www.pagibigfund.gov.ph/index.asp
April 19th, 2007 at 2:49 pm
Trader Pinoy,
The good thing now is that banks extended the loans upto 25years and made it fixed (9-11%). that is something that commercial banks can’t do few years before and only Pag-Ibig can offer. Also, rates now are relatively low compared before (12-18%). With fixed rates, one can manage his/her budget because of expected expenses.I think Pag-Ibig’s rate is around 6% now. this is the miracle of low inflation regime!
April 10th, 2007 at 9:33 pm
college education is getting expensive too especially if you factor in daily costs like board and lodging. about 2 decades ago, present worth analysis of 5-year college course expenses and net income after graduation up to retirement is just about breakeven. i don’t know if the present situation is much better for a college graduate. this is a good exercise in economics where you make assumptions on cost of money, cashflows, inflation, etc.
April 10th, 2007 at 8:13 pm
Economics is taught is high school (third year) but I think the students do not appreciate it, at that stage of life. I’ve completely forgotten what I’ve learned in economics back in HS except the concept of supply and demand. It’s quite boring too, because it’s very theoretical.
Vocational is taught in Trade School so if one studied HS in a trade school, he probably learned one or two skills (e.g., drafting, carpentry, etc.). Don Bosco incorporates drafting (i believe other skills also) in their HS curriculum.
Computer are now taught in schools. But it depends on which school you go to.
But I agree, we need reforms in our educational system. Our curriculum should be designed such that even a HS graduate, will have competencies to find a decent job. Non-degree / vocational courses should also be promoted, especially yong pwedeng pagkakitaan agad. We need to improve the quality of education and make it comparable to other countries so we can compete globally.
April 10th, 2007 at 2:28 pm
We need additional years in highschool to incorporate subjects like economics, computer, vocational course and maybe call center english. If this can be done many highschool gradutes can already find decent jobs.
So far an high school diploma can not give you even a janitorial jobs…