"Just let the graph speak for itself."
President Rodrigo Duterte’s economic managers keep claiming that the Philippines’ 10-year record-high inflation rates of 6.4 percent in August 2018 and 6.7 percent in September have been triggered mainly by external factors—the doubling of crude oil to above $80 per barrel, and the peso depreciation of the peso to more than P54 per dollar, a drop of 8 percent from last year. Therefore, domestic factors cannot be wholly blamed for the inflation spiral—the worst rapid rise in prices of basic goods in the past 10 years.
That, is a lie. The attached inflation rate graph clearly shows that inflation has solely been the problem of the Philippines and not a problem with its four original Asean co-founders and neighbors—Indonesia, Malaysia, Singapore and Thailand. Inflation during the July-September period was below 1 percent for Malaysia and Singapore, below 2 percent for Thailand, and below 3 percent for Indonesia. During the same period, the Philippine inflation rate was climbing past 6 percent and steadily inching towards 7 percent.
Our Asean neighbors were also subject to the vagaries of the crude price jump and the strengthening US dollar. Yet, their inflation rates went down even while Philippine inflation went sharply north.
Three reasons for the inflation spiral in the Philippines:
One, TRAIN. Package One of the Duterte Tax Reform. The TRAIN Law increased tax on diesel from zero to P2.50 per liter, and will further increase to P4 per liter next year. The same law also slapped hefty taxes on sugar and sugar products. Now, diesel and sugar are what you call bellwether products. Mess up with them and they trigger price increases on other products.
A separate measure doubled the salaries of teachers, soldiers and policemen to about P40,000 a month—the salary of a bank branch manager who manages a branch deposit of P2 billion to P3 billion. Together, teachers, soldiers and policemen number one million. Imagine flooding the market with P20,000 times one million people every month. That’s like pumping P20 billion cash monthly into a system that doesn’t produce enough goods—like rice, corn, sugar, fish, meat and vegetables. Since cash is greater than supply, you have inflation.
Two, top-level incompetence at the National Food Authority. The guys in charge of the NFA, led by a certain general, announced last summer they had run out of rice stocks. The rice traders heard about it. So they held back their own stocks to wait for a sharp upturn in prices.
Next, the same general, since sacked by Duterte, was given by Budget Chief Ben Diokno P5 billion to buy rice for distribution in poor rice-deficit areas. Instead of buying the rice, the general opted to pre-pay debts that were not due yet.
So in trying to solve an imaginary debt crisis, the general instead created an unprecedented rice crisis singlehandedly. Result: Record-high rice prices, a severe rice shortage, and a drop in Duterte’s job approval ratings by one-third. Duterte used to be most popular president on earth. Now, he is just one of the guys.
Three, total neglect of Philippine agriculture. Rice is the last frontier in the country being able to lick its decades-old poverty problem. Rice is 20 percent of consumer spending. All food is half of consumer spending.
Yet, the rice we produce today is the same volume we used to produce ten years ago 18 million metric tons of palay. In the meantime, the population increased by 20 million. So the 18 million tons of palay used to be divided by 80 million. The same 18 million tons are now divided by more than 100-million people who ranks are growing by 1.7-million people every year.
Fortunately, President Duterte has awakened. He has issued Administrative Order No. 13. AO 13 has the effect of abolishing the NFA and its functions taken over by the private sector. Any company registered with the SEC can now import rice.