The econometrics of self-rated poverty

Here are two scientific facts: (1) poverty as experienced by Filipino families has been stubbornly high in recent years; and (2) the main explanation behind its time-pattern is a high rate of inflation in the cost of living, and not a lack of growth in aggregate production. The first is shown through statistics; the second is demonstrated by econometrics.

The movements in Philippine poverty over time are best described by the series of surveys of Self-Rated Poverty (SRP). The latest quarterly report on SRP from Social Weather Stations (SWS) was: “Self-Rated Poverty rises by 6% to 55%, while Self-Rated Food Poverty rises by 8% to 44%, between June and September 2026,” www.sws.org.ph, 10/13/26. On the other hand, poverty as officially measured was already single-digit as of 2025, or over 5 times the rate of families calling themselves mahirap (“Unrealistic official poverty,” inquirer.net, 9/26/26).

The September 2026 SWS survey produced the 156th national reading of SRP, which was pioneered in 1983 and 1985 and taken over by SWS in 1986. It became a quarterly in 1992, which is (deliberately) fast enough to compete with the reporting of the gross national product. Incidentally, the SRP-series seems to be the fastest survey-based poverty measurement system in the world.

The 6-point SRP-increase in the third quarter was double the three-point error margin of the SWS surveys. Only one-third of the quarterly changes in SRP have been below the error margin. Slightly less than a third have been upward, and slightly more than a third have been downward. Most of the drops in poverty happened before the 2020 pandemic. Given the SRP percentage of 52 last March and 49 last June, the running average in 2026 is 52 as of now. That 52 may be compared to annual averages of 51 in 2025, 57 in 2024, 48 in both 2023 and 2022, and 46 in 2021, i.e., the postpandemic trend in poverty has been generally upward.

My yen for number-crunching. After my bachelor’s degree, I took many statistics courses at the University of the Philippines (UP); it was for fun, at free tuition since my mother was on the UP faculty. I was also one of professor Jose “Pepe” Encarnacion’s first graduate students in econometrics. As economics department chair, Pepe decided to count my units at the UP Statistical Center toward an economics master’s. He thought me worth sending abroad, under a faculty development program, provided I came back to handle agricultural economics in particular.

At the University of Chicago, where the doctorate called for passing examinations in economic theory and two special fields, I chose agriculture as my first field, as directed by UP, and econometrics as my second; unlike most Chicago students, I skipped taking statistics before econometrics. Upon return to UP, I handled both econometrics and ag econ.

Movements in Self-Rated Poverty are explained primarily by inflation and secondarily by unemployment; they are not affected by growth in the gross domestic product. The latest econometric study on this is: “Macroeconomic conditions as determinants of self-rated poverty: evidence from the Philippines,” Poverty & Public Policy, 2026 (https://doi.org/10.1002/pop4.70068), by Geoffrey Ducanes*, Vincent Ramos**, and Mahar Mangahas.

Its abstract says: “Since the turn of the 21st century, the Philippines has consistently seen a growth in real output, a reduction in unemployment rate, and relatively targeted inflation. Whereas policymakers associate these economic conditions with a drop in income poverty, not much has been said about the relationship between these factors and subjective (self-rated) poverty. Fitting time series models on quarterly data from 2005 to 2019 in the Philippines, the paper examines whether overall and sectoral output growth, unemployment, and inflation, explain trends in the incidence of households who self-rate as poor. The paper finds that the key factors driving changes in the incidence of self-rated poverty are inflation and changes in unemployment, but not so much overall or sectoral growth.”

Furthermore: “We find that when food inflation increases by one percentage point, self-rated poverty increases by 0.68 percentage points, holding unemployment and GDP growth constant. Meanwhile, when the unemployment rate increases by one percentage point (from no previous change), self-rated poverty increases by 1.7 percentage points, holding food inflation and GDP growth constant.” There are also interesting lagged effects: a rise in unemployment may raise SRP in the next two quarters; and an upward or downward change in SRP may itself induce a corrective change in the opposite direction in the next quarter.

Therefore, controlling inflation is of top importance in reducing poverty. Though monetary economics isn’t my field, I must say that I heartily approve of the Bangko Sentral’s recent tightening of the interest rate.