Inflation is a two-headed monster that can sink or propel a nation, economically speaking. Moderate inflation can actually spur economic activity.  Deflation or the opposite of inflation, where prices actually go down due to decreasing demand for goods and services and thus lower production, could actually lead to recession. But an abnormal and unfettered rise in prices could also hurt employment and economic development. Hyperinflation, as what is happening now in Argentina and Venezuela, would be disastrous.

We are far from the economic crisis currently gripping the two Latin American countries. However, there is much concern about the unabated rise in prices in the country which in August has reached 6.4% from 5.7% in the previous month.  In the National Capital Region, inflation has been estimated at 7 % due mainly to the continued increase in food and non-alcoholic beverages and transport costs, among others. On a year-to-date basis, inflation is now at 4.8%, well above the BSP target of between 2% to 4% for 2018. Among countries in Southeast Asia, we have the highest inflation rate in the region.

 

It is expected that the BSP will again increase interest rates during its September meeting, perhaps by as much as 50 basis points. This will only escalate borrowing costs further. As global oil prices also increase, higher transport and power costs will continue to go up. The deterioration of the peso against major currencies, as our BPO deficits widen, can only compound the cost-problems of employers even more.

As if these were not enough, it will not be totally unexpected if labor will file a petition for an urgent increase in minimum wage which business could hardly afford at this time where costs pressures weigh heavily on its operations and eventual viability. Further, there is anxiety on the part of business that wage boards might even grant an excessive salary hike to show compassion to labor and shift the burden to employers.

Granting such a petition will hurt the very engine that fuels economic growth in this country and will not help the more than 2 million jobless, the self-employed and the under-employed. Business too is equally affected by the inflation arising from the high cost of production, and the wage boards must be cautioned in granting such a non-correctible salary hike.

Given all these and the seeming endless distractions and noises from the political front, there is really a basis for concern among employers and investors alike.

While oil price movements in the international market are beyond the control of our policy makers, there are a number of actions that can be immediately put in place to curb inflation and help not only employers but most specially the less fortunate where the brunt of higher prices are felt the most.

Food, and rice in particular, is one of the critical factors affecting inflation. While BSP is implementing monetary measures to address inflation, the surging price of rice is a purely supply and logistics issue.

Rice import restrictions have caused the price of rice over the years to remain high. Equally disturbing is that the supply, and eventually the price, of this commodity are also affected by the smuggling operation in the south.

The NFA and the NFA Council need to get its act together immediately if only to restore an adequate supply nationwide, inclusive of buffer stocks free from bukbuk.  This will alleviate for now the inflation expectation and ease demand pull pressures for this commodity. In the near term, government must seriously address the effectiveness of NFA in fulfilling its mandate and decide firmly and soonest on the rice tariffication bill.

While it would be difficult and unproductive to reverse TRAIN 1 and delay the implementation of TRAIN 2, the government can consider suspending any further automatic increases in taxes on petroleum products in the coming years, as originally proposed.  This will temper further increases in the cost of transport and power and most importantly, rein in inflation expectations.

While it has been stated time and again that inflation will peak in the third quarter, there really is no assurance that this will come about. What is certain is the fact that there is creeping inflation and this can be addressed with coordinated efforts from line agencies of government like the BSP, monetary board, DOLE, DTI, NFA, and DOF.  Such focused efforts to tame and keep inflation within acceptable levels are extremely needed now.

 

 

 

 

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