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FROM a monthly statistic in the news, the inflation rate has begun
taking a bite into more than just the public consciousness. The
average rate of price increases has more than doubled from less than
three percent a year ago to nearly six percent this year. Said
differently, we have witnessed a more than a hundred percent jump in
the inflation rate. Couched in those terms, the above five percent
rise in prices sounds more threatening.
In what is one of the few luxuries of many
Filipino households, dining in a Jollibee fast-food outlet has
become costlier.
Sure, the current increase in average prices
remains in the single-digit territory, mild when compared with the
double-digit spikes seen more than a decade ago. The typical
comparison is made with the early 1990s considering that the
acceleration in prices back then was likewise triggered by oil, a
commodity which the Philippines by and large still imports—and in
large quantities at that.
Back then, as now, those of us who could
remember also faced the prospect of a rice shortage, with similar
government plans of mitigating the jump in prices through
importation.
A big difference now is that the Philippine area
planted to rice and other staples has gone down markedly, in large
part due to the massive conversion of prime land to other uses,
particularly for housing and leisure estates. This in turn has
caused our imports of those food items to surge dramatically.
We are slightly less dependent on imported oil,
or so the government would like to assure us, but the import numbers
released last month show that our purchases from abroad has gone up
nonetheless. Apparently, cheaper imports courtesy of a strong peso
have only whetted our thirst for fossil fuels.
Another huge difference—and probably the
larger problem for us—is the burgeoning appetite of emerging
economies like China and India for fuel, food and other commodities.
Between the two countries they have almost 2.5 billion people to
feed. With rising affluence also comes an insatiable appetite for
fuel to satisfy their newfound penchant for cars, as well as
electricity for their growing number of appliances.
This presents a problem for the Philippines
because the large size of both countries’ requirements enable
their demand to push prices higher in the international market.
Their economies are growing by double-digits, even as their exports
are surging, thus allowing them to finance rising external payments.
Unfortunately, we cannot say the same about our
country. Until last year, the record growth of overseas Filipino
worker (OFW) remittances and the return of foreign investments
allowed the country to finance its balance of payments, which is the
tally of its economic transactions—including trade and income
transfers—with the rest of the world.
OFW remittances this year are expected to slow
to single-digit increases, according to the Bangko Sentral ng
Pilipinas (BSP). Foreign investments meanwhile are seen to ease due
to rising risk aversion, as people with money seek safer
havens—largely commodities like oil and gold—to park their
excess funds.
The government’s improving fiscal position
also means that it has less need for borrowings, much less foreign
sources. This comes with its plan to balance its budget this year.
During the height of the fiscal crisis, the government was in a
borrowing bonanza.
The strong peso also put public pressure on the
government to limit any borrowings to the domestic market, as the
weak dollar is eroding the earnings of OFW beneficiaries and
exporters.
Inflation’s wider net
The acceleration of inflation has cast a wider
net. Nowadays, we hear not only OFW beneficiaries and exporters
complaining of declining living standards.
The BSP already has washed its hands of the
problem. As per its analysis, the current crisis stems from the
supply side, something which monetary policy is ill-equipped to
handle. Last month, it broke away from the loosening tack pursued by
its US counterpart, the Federal Reserve, citing rising inflationary
risks.
The supply side ranges from the production all
the way to the delivery mechanisms of rice, fuel and other
commodities. Addressing this side of the economic equation would
entail huge spending especially on the part of the government. The
government’s response so far has only confirmed that we are indeed
in a crisis. The sight of military trucks hauling off rice stocks
bolsters this perception.
The benefits from ongoing reforms on the
delivery front—such as the nautical highway—will be slow in
coming. Longer still will we wait for the dividends from current
efforts to resuscitate the country’s food production
infrastructure. (Although the President’s keynote speech on the
new “FIELDS” programs to reinvigorate the agricultural sector
and ensure food security seems persuasive.) We surely have to wait
truly longer for our oil exploration and alternative fuel
initiatives to have an effect on pump prices.
Needless to say, we are in a big mess. The
government will have to send a strong message that it is doing
everything in its power to prevent these problems from spiraling out
of control. This is why we’re so surprised that the Department of
Finance is proclaiming that the balanced-budget goal is still in the
cards.
For the short-run, the government will have to
bite the bullet and let go of any aspirations of closing its fiscal
gap this year.
The cat is so out of the bag, so the government
should not waste its energies dilly-dallying. The earlier it
concedes to this, the sooner our creditors and the financial markets
as a whole could look past this sordid episode.
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