‘Unexpected’ inflation
Even the most pessimistic of all predictions from a government agency about the June inflation rate failed to measure up to the actual number when it was released last week. On Thursday, government statisticians revealed, to the shock of even the administration’s economic managers, that prices of goods and services had risen by 5.2 percent last month, bringing it to yet another record high for at least the last five years. The underlying cause was a spike in prices of food and nonalcoholic beverages, as well as alcoholic drinks, tobacco, water and electricity, all of which were being swayed by a major underlying factor: the rising cost of crude oil in the international market, which affects production costs across the economy. This was, in turn, being amplified by the effects of the tax hikes imposed by the Duterte administration at the start of the year.
Economic Planning Secretary Ernesto Pernia described the number as “unexpected,” saying he was hoping it would not breach 5 percent. Private economists were forecasting it to be capped at 4.8 percent. The Department of Finance had predicted a rate of no more than 4.9 percent, while the more conservative Bangko Sentral ng Pilipinas (BSP) expected inflation for the month to be no higher than 5.1 percent.
BSP Governor Nestor Espenilla Jr.—already under the microscope for seemingly not acting early enough to head off the price increases with economic growth-crimping rate hikes—conceded that the June inflation rate was a “setback,” and vowed to do more.
Yet last week’s number only confirmed to economic planners what the rest of the country already knew: that price increases are hurting the pockets of Filipinos, most especially those at the bottom of the socioeconomic pyramid whose already weak purchasing power is being eroded even more.
Beyond the hand-wringing and finger-pointing, however, there are moves the government can make to ease the burden.
First, it should implement a rice tariffication policy to replace the existing antiquated mode of using import quotas to protect local farmers. Instead of capping the volume of imports, the government can allow private traders to bring in as much as they want, subject to a government-imposed tariff rate. Apart from making the system more transparent, this policy will also shift pricing power to consumers, whose household budgets have rice as the single biggest item (about 20-25 percent, according to studies), and away from big-time traders who are routinely suspected of creating artificial shortages every few years in order to make a killing on the price spikes.
Secondly, the central bank should act more decisively against inflation by raising interest rates to a level that will, once and for all, quell so-called “second round” inflationary effects. Indeed, the ball is already rolling for some of these reactions that tend to aggravate inflation further, like public transportation fare hikes and wage increases. More decisive monetary policy tightening is necessary to prevent these reactive effects from making the situation worse.
Finally, and perhaps most importantly over the longer term, the Duterte administration must redouble its efforts to get its infrastructure buildup program out of the starting gate faster. With as much as P9 trillion worth of roads, bridges, airports and seaports on the drawing board, implementing even just a fraction of that will create thousands of direct and indirect jobs that will allow Filipinos to cope better with the soaring cost of living.
These policy prescriptions do not come cheap, and implementing them will entail the use of large amounts of political capital to overcome entrenched vested interests and inertia. But the alternatives are higher dissatisfaction among voters going into an election year and, outside of such political considerations, simply the grave possibility of many more Filipinos going hungry and impoverished.