Title:

Effect of the Uncontrollable Price Hikes of Gas in the Lives of the Filipinos

Introduction:
As inflation soars in the Philippines and gasoline prices climb relentlessly, more and more
commuters in the capital are squeezing into suburban trains and public buses, putting an
enormous strain on the services. Except, of course, for those people who can afford to
take a cab or transport themselves through Transport Network Vehicle Services (TNVS),
such as Grab and Uber. Unfortunately, however, only few commuters can pay for the
services of these TNVS.
With unleaded gas now costing over 61 pesos a litre, tens of thousands of car owners
are joining the queues for Manila's already overcrowded above-ground suburban train
system.

The Philippines has ambitious plans to extend suburban train services in Manila,
eventually covering much of the city, but that will take years and cost billions of dollars.
Meanwhile, the surge in demand for trains is worrying transport officials.

Unlike consumers in many other Asian countries which subsidies fuel prices, Filipinos are
forced to pay the free-market rate for gas. So far this year, they have been hit with left
and right price hikes as global oil prices climb to stratospheric levels.

Based on the Department of Energy’s (DOE) monitoring, global as well as Asian prices
were still on escalating pace due to combination of factors. Bechmark Dubai crude was
seen arising by average US$2.00 per barrel in the past weeks of trading; while the Mean
of Platts of Sngapoe (MOPS), which is the adopted pricing index for oil importers in the
Philippines, had been reported inching up by US$1.00 per barrel. The falling value of the
peso against the dollar has also been contributing to trigger in pump price increases in
the domestic market. The local currency was seen shedding

Another factor that added to the growing dilemma of Filipinos in the price hikes of gas is
the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law that
took effect on the first day of this year. For now, the Department of Energy (DOE) said
in a statement that the additional excise tax on fuel under the newly-enacted TRAIN law
should not affect the costs of oil companies' old or existing stocks, including those under
the 15-day minimum inventory requirement. Note, that the TRAIN law is designed to
make up for the loss of revenue due to reduced income tax, RA 10963 imposes higher
taxes on cars, fuel, tobacco, cosmetic surgery, tobacco, and some sweetened beverages.
Diesel, which is not taxed at present, will be imposed P2.50-per-liter tax in 2018, P4.50
in 2019, and P6 in 2020. LPG would have be taxed P1 per liter in 2018, P2 in 2019, and
P3 in 2020. For gasoline, from the current tax of P4.35 per liter, it would be imposed a
levy of P7 per liter in 2018, P9 in 2019, and P10 in 2020. Therefore, even if we assume
that the gas price in the international market remains steady the increase in the gas price
in the Philippines will surely be experienced in the next two years.

With this which appears now as the unstoppable price hikes in gasoline products, the
Filipinos have no options but to swallow this. Hence, this study is intended to determine
the effects of the unstoppable price hikes of gasoline in the Filipinos. Incidentally, this
study will also include some discussions regarding factors that cause this unstoppable
price hikes. At the end of this work, the author intends to suggest solutions on how to
lessen the impact of these price hikes in the lives of the Filipino people.

Theoretical Framework:

A number of earlier studies have analyzed the welfare impact of price changes. Methods
used in these studies differ considerably. Some researches focused on the country-level
impact while others looked at the household-level impacts. Furthermore, some studies
focused on the major commodities. A few researchers also adopted a specific economic
model for the analysis.

It is recognized that analyzing the economy-wide impact of soaring prices is important

precisely because a large increase in the prices of food and fuel may threaten
macroeconomics stability as well as the country’s overall growth. This is especially true
for low-income, net importing countries. Most of the developing countries are particularly
vulnerable because of certain characteristics, such as, having high levels of chronic
hunger and being highly dependent on imports of major grains.

A study conducted several years ago, evaluated the macroeconomic impact of rising food
prices on households by using poverty distribution analysis. Applying the Oxford
Economics global model, the study traced the impacts of rapidly climbing food energy
prices on developing economies in Asia, including the Philippines, within two (2)
scenarios: The first supposes that the 57.5 percent increase in world food prices in the
first quarter of 2008 continues until year-end, and the second assumes that the 66.5
percent rise in the world oil prices is added on top of the food price increase. The results
were not presented as projections but as mere indications of how countries could respond
to shocks coming from unprecedented rise in food and fuel prices. Nonetheless, four
findings on the expected impact of food and fuel increases on the macroeconomy were
identified, namely: (i) higher domestic rates; (ii) fall in private consumption; (iii) higher
in gross domestic product (GDP) because of diminished consumption and investment
demand.

The increase in food prices also tends to intensify income inequality in the Philippines.
Results show that increases in food prices by 10.0 percent, 20.0 percent, 30., percent will
raise the Gini index by 0.55, 1.10 and 1.65 percentage points, respectively. To address
the increase in food prices, the study recommended that export restrictions should be
discourages, domestic markets should be unrestricted, and government controls over
prices and resource allocation should be avoided. To alleviate the social impacts of such
price shocks, the extremely poor must be provided with well-targeted assistance in the
form of cash transfers, food-for-work, feeding programs, and food stamps; and small
marginalized farmers must have equal access to credit, fertilizer, improved seeds,
electricity and water and should be provided market access across the region and in the
global marketplace. It was also recommended that in the long-run, improvements should
be made on land and for productivity in agriculture through long-term investment and
technological advances, including upscaling of research and development, and
sustainable land use.

At the microeconomic level, the first step in doing the analysis is to determine the
proportion of net seller and net buyer households and their characteristics. After that, the
next step would be to determine the likely welfare impacts of a price change households
varies depending on existing consumption patterns and household market position as net
buyers and net sellers. Most of the recent studies, however, adopted nonparametric
techniques in the analysis to allow convincing demonstration and presentation of results
within minimum unnecessary assumption.

Problem:

(i) The Philippine government has no sufficient source of fund to subsidies the
payment for the gasoline consumption of the Filipinos; and

(ii) The unstoppable price hikes in Gas has domino effect in society, such as
increasing also the costs of the basic commodities, thereby making it more
difficult for the Filipinos particularly with people who have less income.

Conclusion:

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