We talk less about inflation – BusinessWorld Online
Headline inflation in June jumped to 6.1% year-on-year from 5.4% in May and 3.7% a year ago, the Philippine Statistics Authority (PSA) reported. This figure was slightly higher than the median estimate of 6% in a Business world survey taken at the end of June, but within the Bangko Sentral ng Pilipinas (BSP) forecast range of 5.7% to 6.5% for the month (Business worldJuly 5, 2022).
June’s inflation rate matched the pace recorded in November 2018 and was the fastest growth since printing 6.9% in October 2018. It was the third month in a row that inflation exceeded the target range of 2-4% of BSP.
“6.1? I think I’m going to have to disagree with that number. We’re not that high,” President Ferdinand “Bongbong” Marcos, Jr. said during a press briefing following his first Cabinet meeting in Malacañang (GMA News, July 5, 2022).
Dennis Mapa, national statistician and head of the PSA, replied: “The Philippine Statistics Authority stands by its report” (ibid.). Finance Secretary Benjamin Diokno was quick to defend Mr. Marcos Jr., saying, “The president’s disbelief at the 6.1% inflation rate in June 2022 has been misunderstood. He was referring to it as a full year number when in fact the year-to-date, meaning the average inflation rate from January to June is actually 4.4%.” (RapperJuly 6, 2022).
During the press conference, Neil Mercado of Applicant asked Mr. Marcos Jr.: “The inflation rate has climbed to 6.1%, the highest since October 2018. Does the president have a concrete plan to fix it? To understand the Pilipinong umaaray na sa taas ng presyo ng bilihin (How will you help Filipinos feel the pinch of high commodity prices)? (ibid.).
The question baffled the new president. It is indeed difficult to feel around the edges of the inflation – how big the spill is and how to mop it up with the appropriate remedies. Perhaps even the most technically competent statisticians or the most astute econometricians cannot accurately measure and conclude on the interaction of macroeconomic supply and demand that would raise prices and affect gross national product, and much less anticipate the deepest micro-elasticities of each economic participant to determine the personal effect of changes in purchasing power and the value of money. Inflation is felt, before it is known.
“In June, the World Bank projected in its Global Economic Outlook that the inflation rate in advanced economies rose from 1.9% to 6.95% in the year to April, while the Inflation rate in emerging and developing economies rose from 4.23% to 9.37% over the same period High inflation rate is expected to be persistent rather than transitory as the invasion of Ukraine by Russia has further increased food and energy prices, hitting net importers of food and/or energy particularly hard” (thediplomat.com June 20, 2022).
“Our inflation is imported,” Mr. Marcos Jr. said (on GMA News, quoted), albeit ambiguously, perhaps for lack of scientific nomenclature to define our economic situation as a “supply-side” problem. ” which caused an increase in “costs”. push inflation. Less chatter na lang sanabut, yes, we have to talk about the “elephant in the room” and try to feel its size and power, in the complication and persistence of the COVID-19 pandemic that has fueled the global inflation pandemic.
Perhaps former secretary Ernesto Pernia talked too much, when he was head of the National Economic Development Authority (NEDA) for four years under President Rodrigo Duterte. In a statement, Mr. Pernia said he had chosen to leave his post due to personal reasons as well as “differences in development philosophy with a few of my fellow cabinet members” (CNN Philippines, April 17, 2020). . “Monetary policy is more of a demand-side solution to inflation, not a supply-side one. But our inflation is mainly caused by supply – the availability of goods, high world oil prices. These are the main causes of inflation on the supply side, as well as the unavailability of rice in time,” Mr. Pernia said. (RapperAugust 10, 2020).
The US Federal Reserve raised its benchmark interest rate by 75 basis points to a range of 1.5% to 1.75% in June – the biggest increase since 1994. Fed Chairman Jerome Powell said signaled that there could be another rate hike in July. The Reserve Bank of Australia is expected to raise rates again on Tuesday, and other Asia-Pacific economies like the Philippines, Singapore and Malaysia have all jumped on the same rate hike bandwagon (cnbc.com July 4, 2022). Effective June 24, 2022, the BSP/Monetary Board raised the interest rate on the BSP’s overnight reverse repo facility by 25 basis points to 2.5% (100 basis points equivalent to 1 %). As a result, interest rates on the deposit and overnight lending facilities were raised to 2% and 3%, respectively (bsp.gov.ph).
Maybe monetary policy is the wrong solution to inflation, many analysts are now saying, and as Mr. Pernia once pointed out. Rising interest rates in inflation discourage borrowers, who would not lock themselves in on high rates for long periods. This worries lenders and investors (especially retail investors), who calculate the real interest rate net of the inflation rate, finding little residual value or, worse, “negative carry” (the inflation rate is greater than the nominal interest rate), all for loan risk. So too, borrowers at high interest rates, in high inflation, would clearly be desperate borrowers, and considered high risk. The risk is so heightened in inflation that those with excess cash prefer to hoard scarce goods and buy real assets (cheaper due to some people’s need for cash amid a depreciating local currency) .
HSBC chief economic adviser Stephen King said that “it is not simply the demand or supply shock that is to blame for inflation, but the workings of both sides of the equation. Pandemic shutdowns, supply chain disruptions and the Russian-Ukrainian war, along with the stimuli that governments have injected into their economies and loose monetary policies, have contributed to higher inflation” (cnbc.comJuly 4, 2022).
“Authorities should use all available policy tools to fight inflation, including monetary measures to prevent the unanchoring of inflation expectations, and supply-side measures such as importing and lowering tariffs and non-tariff barriers for important commodities to help increase domestic supply as needed, and increased support for agricultural production through extension services, seeds and fertilizers” , said Karl Chua, then head of NEDA in the Duterte administration.RapperMay 25, 2022).
Postpone income tax cuts, impose new taxes, reduce VAT exemptions, outgoing Finance Secretary Carlos Dominguez III said during his exit press conference on May 25, where he presented his draft transition plan to political governance then assumed. (Read my column, “The Proposed Fiscal Consolidation and Resource Mobilization Plan,” in Business world June 5.)
The pragmatist could see some growing weaknesses in this inflation, the “supply side economics” on which the aggressive Build, Build, Build strategic plan and fiscal policy under the Tax Reform Act were based. for acceleration and inclusion (TRAIN). There does not yet appear to be a formal reaction from the new Finance Department, now headed by Benjamin Diokno (BSP Governor under Duterte) to the fiscal consolidation plan proposed by Dominguez, and no counter-plan or entirely new plan has emerged. been made transparent to people.
There should be less talk of inflation and apparent denial of the sorry state of the Philippine economy. An economic action plan must be transparent so that it allays people’s apprehensions about what a darker fate might be approaching as the COVID gloom still does not let up.
Amelia HC Ylagan is a Doctor of Business Administration from the University of the Philippines.