A stop-gap measure

This becomes a chicken-and-egg question: Which came first to have caused inflation?

For a consumption-led growth that our country has been enjoying these past few years, it has been us Filipino consumers who have largely carried the ball in pushing the Philippine economy forward. Now we, too, have to bear the brunt of surging inflation as a consequence of a consumptionled growth, which is the weakest source of economic development for a country.

This is the sad reality we have been living with through these years after the ambitious plans in the past to industrialize the Philippines were abandoned. The late president Ferdinand Marcos may have committed all the human rights abuses and massive corruption in government, but many of his long-term industrial plans for the Philippines, including his dream to turn the country into a manufacturing hub in Asia, should have been pursued even after his ouster from power during the 1986 People Power Revolution.

No less than our incumbent President, former Davao City Mayor Rodrigo Duterte, makes no bones of his admiration for Marcos’ foresight and grand dreams for the Philippines to become an economic leader in this part of the world. Unfortunately, succeeding administrations did not share the same dreams and naturally pursued their own respective agenda.

Many of the infrastructure programs that dated back to the Marcos regime were largely implemented though, except for a few that never saw the light of day. But the more strategically viable program to industrialize the Philippines got sidetracked, somewhere.

Upon assuming office in June 2016, President Duterte vowed to build not just more roads, but to put up additional airports, railways, subways, among other ambitious projects under his administration’s Build, Build, Build infrastructure program.

Although many of these Build, Build, Build projects are still in its detailed engineering and feasibility studies, a number of them are already at shovel-ready stages. Despite only a few of them are on this stage of implementation, the many new jobs these have created so far have infused more money into the monetary system. More money means more consumption, and consequently increasing the demand for food and services.

Being a non-supplier of manufactured products, we have a situation in our country where there is more money in the hands of the people but few goods and services available. As our Economics 101 taught us, it simply shows we have a demand-pull inflation.

“Demand-pull inflation is used by Keynesian economics to describe what happens when price levels rise because of an imbalance in the aggregate supply and demand. When the aggregate demand in an economy strongly outweighs the aggregate supply, prices go up.”

On the same breadth, there is also a cost push inflation. This is a situation when the aggregate supply or the total volume of goods and services produced by an economy at a given price level stemming from an increase in the cost of production, we have cost push inflation.

This becomes a chicken-and-egg question: Which came first to have caused inflation?

The Philippine Statistics Authority (PSA) reported yesterday consumer price index (CPI), as inflation indicator, rose 5.7 percent in July. The PSA noted this is so far the fastest increase in CPI in five years. Much of the increase was notably fuelled by the faster increases in the prices of food and beverages.

According to the PSA, the headline inflation for July rose at a faster pace than 5.2 percent in June, and 2.4 percent in July 2017. The uptrend was attributed mainly to the 7.1 percent annual growth rate in the index of food and non-alcoholic beverages. The indices of nine out of 11 commodity groups monitored by PSA recorded faster increases during the same month.

On the other hand, the core inflation rate, which excludes selected food and energy items, accelerated by 4.5 percent last month. It is likewise faster than 4.3 percent in June and 2.1 percent compared to its rate in July last year.

The implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law was earlier blamed for the surge of inflation since it took effect on Jan. 1 this year. Administration critics point to the resulting increase of prices in goods and services as having been caused by higher taxes passed on by manufacturers to us consumers.

The economic managers of President Duterte earlier assuaged the public by saying the rising prices of goods and services were a “temporary” reaction of the markets to the TRAIN law.

So before any blame-tossing starts, the economic managers of President Duterte have recommended an immediate adoption of mitigating measures to temper the surge in inflation for the rest of the year.

Their recommended solution: to impose zero tariff rate and remove existing non-tariff barriers of certain imported food products that comprise the food baskets in the CPI. In this way, these imported food products will beef up and flood the existing supply in the markets and thus, ease up prices.

Under existing tariff rates, the following imported food products are levied as follow: rice at 35 to 50 percent; 7 to 15 percent on fish; swine at 30 to 40 percent; poultry at 40 percent; corn at 35 to 50 percent; feed wheat flour and corn flour at 7 percent; and, vegetables at 3 to 40 percent.

Since time is of the essence, the economic managers cited, the President is empowered by the “flexible clause” under Section 1608 of Republic Act (RA) 10863, or An Act Modernizing the Customs and Tariff Administration.

Under the country’s 1987 Constitution, President Duterte can invoke his powers to legislate when Congress is not in session. And in this case, the President can impose zero tariff and remove import quota on these food products effective immediately.

The third and last regular sessions of the 17th Congress is set to go on recess this Aug. 17 until 27. This is the window within which the President will issue an Executive Order (EO) to stem inflation from getting any worse.

Anyway, should the situation improve, Congress can re-impose the same tariffs and quotas at any time when it resume sessions. But for now, that’s the stop-gap measure.