WHEN a major government department makes an announcement intended to be an innocuous little bit of good news but instead elicits a puzzled reaction, that’s probably something worth looking into a little deeper.
Such was the case late Sunday afternoon—the time when all the newspapers around town are gathering their headlines for the Monday morning editions—when an advisory was received that “the latest economic bulletin” from the Department of Finance speculated that September headline inflation may be just 0.5 percent, lower than August’s 0.6 percent.
There are several things that are odd about this announcement. First of all, the “economic bulletin” is not a regular issuance of the DoF. The last one was on September 4, and it was a minor statement that simply repeated the news about the August inflation rate without adding anything to the official release from the Philippine Statistics Authority; the “economic bulletin” prior to that, at least according to the DoF website and the Official Gazette, was at the beginning of December last year, and was a statement on the overall fiscal performance of the government.
The second odd thing is the timing of this latest piece of news. The DoF has never, to my knowledge, issued an inflation forecast. The Bangko Sentral ng Pilipinas always does, but only in the last few days of the month in question, or in the first few days of the following month, a few days or perhaps a week ahead of the official release from the PSA. For the government to issue an inflation advisory in the third week of the current month is strange, to say the least. As far as the actual figure is concerned, it is probably correct, or close to it; at this point in the month, preliminary data is probably already in hand at the PSA, although they would not ordinarily make it public because it is still subject to late updates and the normal process of compiling and verification.
Gaming the markets?
It is also a bit odd that the statement was released on a weekend, but that may actually explain what the DoF’s intentions really are. When government agencies want information to come to the attention of the general public, releases are made during the workweek; the BSP and the National Economic Development Authority, for example, issue most of their reports on Tuesday or Thursday.
One reason why an agency might release an important indicator like inflation on a weekend, timed to hit the news on Sunday night or Monday morning, is to catch the attention of the financial markets. Monday’s news has no reports about local market activity because the markets are, of course, closed on weekends; instead the space is devoted to an outlook for the week ahead, which market players use to guide their activity once the markets open on Monday.
In the local stock market, although the outlook for this week was cautiously optimistic, there is still a sense of uncertainty creating volatility (which has caused the market to trend downward for an extended period of time), largely because of the over-emphasis of the impact of US Federal Reserve interest rate decisions.
Last week, the Fed bucked the general consensus and left its rates at their present low, hinting that they could be raised later—in other words, leaving world markets, including this one, in the same state of uncertainty they were in before the Fed meeting.
A more significant, and for the DoF more worrisome, piece of news was the statement from the Philippine Dealing & Exchange Corp. (PDEx) Friday afternoon that the local bond market is likely to only see about half of the P200 billion in debt issuances it expected for this year, and implying that even that reduced amount was not very certain.
“It’s possible to hit P100 billion,” said PDEx president Cesar Crisol, explaining that there are just four more listings planned this year.
Taking all that into consideration, the message the DoF seems to be trying to convey with its unusual inflation forecast is that the rapidly dropping inflation rate is actually a sign of a healthy economy, and that markets—and especially investing corporations—ought to be accelerating their economic activity. Another way to read that message, however, is “Please help arrest this economic slide we seem to have gotten ourselves into.”
Bad time for a decline
If the 0.5 percent forecast holds—and there is no reason to believe it will not—September will be the seventh straight decline in the inflation rate, which has not been at these depths in more than 20 years.
Financial markets and the general economy has had more than enough time to “price in” the effects of lower oil prices, the main cause to which falling inflation is attributed, and taken together with the relatively sharp correction of GDP growth from the 7 percent range to the mid-5 percent range, the enthusiasm about the economy definitely seems to be waning. It certainly is waning among banks and other top-level analysts, with BMI Research and Deutsche Bank just yesterday joining a host of others in revising their forecasts for this year downward.
That, of course, is precisely what the Aquino Administration does not want to see in an election year, particular given the regime’s sensitivity to credit ratings and outside perceptions of the Philippine economy.
Voters anywhere, especially in this country, tend to assess the results of policy on a “what have you done for me lately” basis, and a cooling economy—despite the fact that in reality, it is only headed in the direction of stagnation, and is not yet at that point—gives the opponents of President BS Aquino 3rd’s preferred successor plenty of ammunition.