History is replete with tipping points, a term coined by journalist and author Malcolm Gladwell to refer to “the moment of critical mass, the threshold, the boiling point,” or phenomena that, often at times out of the blue, precipitate seismic change.
On the morning of Sept. 6, all the major dailies in the Philippines carried the same banner story: The 6.4-percent surge year-on-year in inflation for August, the highest in almost a decade, in the wake of a seemingly uncontrollable surge in the prices of basic commodities and utilities.
The Philippine Statistics Authority confirmed that the rate is the fastest since the 6.6 percent recorded in March 2009 toward the end of the term of then-President Gloria Macapagal Arroyo, who is now House Speaker. The rate is also the fastest in Southeast Asia and exceeds the government’s upper forecast of 6.2 percent and target of 4 percent for the year.
Inflation had been in the escalating issue for the entire year, which started with much-vaunted Tax Reform for Acceleration and Inclusion law. The government’s economic managers had then sought to downplay the many apprehensions on the law’s injurious impact on commodity prices, stressing, for instance that of the basic commodities only sugar-sweetened beverages could expect movement in prices.
Such effects would only be temporary, they said, and measures would be put in place to mitigate any other impact. By these assurances, both Houses of Congress acceded to the adamant pressure of no less than Secretary of the Department of Foreign affairs who personally made sure that TRAIN 1 taxes were passed.
Eight months later, the same economic managers are now struggling to explain how they failed to predict the sheer scale and endurance of TRAIN’s impact on inflation, on top of trying to appease a restless public. “It’s nothing to worry about,” said Presidential Spokesman Harry Roque. “Historically it’s high but not ridiculously high.”
The numbers tell a different story, however, with inflation rate well above government estimates: food and non-alcoholic beverages (8.5 percent), alcoholic beverages and tobacco (21.6 percent), furnishing and household equipment (3.5 percent), health (4 percent), and restaurants and miscellaneous goods and services (4 percent), among others.
More than innocuous numbers, for many Filipinos, these figures mean less food on a quickly emptying table or one less meal a day. The hardest hit, as always by bad policy, are always the poor who are barely eking out a living given the continuing strain on their meager incomes.
Economist Rep. Joey Salceda (Albay) explained: “What is more worrisome is that it would reverse gains in poverty reduction and hunger mitigation since the main culprit is food inflation, which surged by 8.5 percent. Thus, the inflation of the poor (lowest 30 percent) is estimated at 7.4 percent.”
Worse, inflation is higher in regions with already high incidence of poverty: Bicol (9 percent), ARMM (8.1 percent), and SOCCSKSARGEN (7.9 percent). Vegetable prices in Cagayan Valley skyrocketed at a rate of 35.6 percent. Fish prices surged in Bicol at 20.2 percent.
Thus, instead of trying to euphemize the problem or redirect blame, government should get its act together. Salceda said the blame falls squarely on government. For sure there are other forces at play, such as the rising oil prices, supply difficulties, and market opportunists, but for the administration to do “little or nothing” is inexcusable.
For instance, while some officials blame rising global oil prices for the record-high inflation, the fact that the Philippines is one of the biggest net importers of oil in Asean—as much as 94 percent according to some study—should have given Duterte’s economic managers pause in terms of implementing TRAIN, the timing of which is “patently ill-timed,” said economist JC Punongbayan. For any consumer or entrepreneur, higher fuel costs simply means higher costs on everything!
Most of the working class are not aware that TRAIN also provides two more rounds of automatic petroleum tax hikes in 2019 and 2020. Even more expensive fuel prices for everyone.
He said the proposed bill to stop the implementation of TRAIN’s petroleum tax hikes is “more and more justified by the day.”
Rice, the staple for a big majority of the population, also saw record movement in prices. This should now be a crisis mode situation, not just politically, but as an escalating, gut level, national security priority. A few regions witnessed double-digit rice inflation rates in August, with Zamboanga City and Basilan notably declaring a state of calamity after rice prices reached P70 a kilo.
In many ways it was just the tip of the iceberg that revealed, among others, faulty decision-making and mismanagement at the National Food Authority and unabated smuggling. There were already reports of a near-depleted rice buffer stocks as early as the beginning of the Duterte administration, from 1 million MT in June 2016 to just 2,000 MT In June 2018 just two years later.
For economic experts, measures that should be put in place include (1) putting a stop to TRAIN’s petroleum tax hikes next year and (2) hastening the importation and distribution of rice nationwide, especially to rice-deficit areas and food-deficit populations. Budget Secretary Ben Diokno singled out the rice tariffication bill, which will enable the country to shift from the quota system in importing rice to a more open tariff system.
Politically speaking, all these crises are taking place toward the halfway point of the Duterte presidency. In the most recent SWS survey, “The 11-point decline in President Duterte’s net satisfaction rating from March 2018 to June 2018 was due to declines of 20 points in Metro Manila, 18 points in the Visayas, 6 points in Balance Luzon, and 6 points in Mindanao.” Their charts show that more and more Filipinos are growing dissatisfied. The lame excuses, blame games, and shows of bombast, like the agriculture chief eating bukbok-infested rice or the justice department obviously going after a vociferous critic in Trillanes. Smoke screens and spins or troll armies will not work when the people are hurting.
For this administration, the lesson here is clear: listen to the experts, for a change, and focus on the real solutions instead of being allergic to criticism. Stop blaming external factors causing inflation and do something about what government can control. If stopping the revenue leaks from bureaucratic inefficiencies, smuggling and corruption can’t be done, then doing something about taxes seems to be the only option. What this administration will do in these weeks will spell the difference on whether the record August 2018 inflation would be just another interesting hiccup or the tipping point to a major disruption.