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Saturday, March 2, 2024

The worst is yet to come

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“Let us brace ourselves.”

The worst is yet to come.

So fears House Fuel Crisis Ad Hoc Committee Co-Chairperson Joey Salceda. The Albay congressman sees further increases in the pump prices of refined petroleum products, by 130 percent, or more than double last year’s prices.

The price spiral could improve only after 2022 is over. So expect hardships in the coming eight months, or until prices of gasoline, diesel and other refined petroleum products go back to old levels when crude was at $60 to $80 per barrel.

In the meantime, or until perhaps December this year, brace yourself for a raging storm, a major crisis, in fact, with higher prices of fuel, food, electricity, water, transportation, indeed, in prices of nearly everything, including your rent, telephone bills, and cost of borrowing.

Food is as high as 55 percent of a poor family’s budget. Prices of nearly every food item are going up. Good, if supply is enough. It is not.

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This year, the Philippines will import 2.6 million tons of rice, on top of the 2.3 million tons it imported last year. But the peso dollar rate has changed, from P50.77 beginning of last year to P52.53 yesterday, a devaluation of 3.46 percent. In less than a year, rice price (cwt) rose 19 percent, from $13.86 in November 2021 to $16.50 on March 4, a week after the Russian invasion of Ukraine.

Oil has gone berserk, rising early this week to a 13-year high of $130 per barrel of Brent crude, before settling at $111 yesterday, March 10.

The ban on Russian oil exports means some 5.5 million barrels must be replaced by non-Russian suppliers daily, and there are no such suppliers. Projections are that oil will hit as high as $185 per barrel by June, its highest ever, before softening to maybe $150. Russia is the second largest oil producer and accounts for 12 percent of total global supply.

If oil remains at $127 per barrel, Salceda estimates gasoline will increase, some more, by P11.10 per liter, diesel by P9.25, and kerosene by P8.88. Those are on top of pump price increases averaging P5 per liter last Tuesday, March 8.

According to Salceda, Russian oil supply will continue to be suppressed even if the Ukraine crisis sees resolution, as sanctions will likely continue to be imposed on Russia.

“I expect no significant reductions in oil prices until June at the earliest. By then, crude oil spot prices will likely have approached $180 [to]190 per barrel,” he said.

“If these highs are reached, total price increases since 2021 will have been: P58 for gasoline, P53.75 for diesel, and P47 for kerosene,” added Salceda.

Salceda sees overall inflation to hit as high as 5.2 to 5.4% by June, “considering added pressures on bread (Russia and Ukraine are among the world’s largest producers of wheat), typical power demand surges during the summer months, and second-round effects of oil prices on transport costs, electricity, food (especially fish), and other basic commodities”. Inflation was 3 percent in February.

Oil or fuel is an essential cost of most manufactured goods and activities. The ratios in percentages: 28.5 percent of making ceramics, 27.3 of medicines, 25.3 of steam and hot water supply, 21 of textiles, 17.4 of plastic products, 12.7 of fertilizer, 12.7 of steel bars, 12.5 of nickel mining, 11.2 of cement, 8.6 of stone quarrying, 6.4 of copper mining, 6.1 of gold mining, 4.2 of water distribution, 4.1 of fishing, 3.1 of sugar refining, 2.9 of pineapple, 2.9 of prawns, 1.7 of tobacco, 1.6 of palay, and 1.4 percent of mango.

Briefing President Duterte on March 7, Finance Secretary Carlos Dominguez said the Russian invasion through four indirect shocks –commodities, finance, investments, and the fiscal health of the government. The head of the economic team explained:

“First, oil and food prices are expected to go up as Russia is the largest exporter of natural gas and wheat (trigo); while Ukraine is the fourth largest exporter of corn. As the conflict continues, Ukraine and Russia’s main trading partners, predominantly the European Union, will look to trade with other countries such as US and China, where we are buying both wheat and corn, thereby pushing up the prices of commodities in these markets as well.”

“Second, the conflict will also likely cause a surge in interest rates or cost of borrowing which was already expected to go up even prior to the crisis because of the US Fed’s tightening of monetary policies. The conflict will increase the perception of risk in investments.”

“Third, investments are likely to decline or at least be on hold in the face of uncertainty, which may cause investors from the West to be more conservative or postpone their planned investments. Once sanctions are imposed, it will take a long time for investor and consumer confidence to return to normal.”

“Lastly, all the aforesaid economic impacts will likely require government support to protect our vulnerable citizens and the critical sectors most affected by the crisis and this will stretch our budget even further.”

Dominguez has assured “we do not expect this crisis to last very long. However, there may be some lingering effects we have had. We have seen similar crises in the past such as the Gulf War in 1990, the Asian financial crisis in 1997, the oil price shock of 2008, and also the first Russia-Ukraine conflict in 2014, and we have weathered all of these crises very well.”

“We have experienced crises whose effects were more severe and direct to the economy such as the Asian financial crisis in 1997 and the global financial crisis in 2008. These crises lasted much longer and yet we were able to get through them. Based on these experiences, we are confident that we have the tools and the preparation necessary to help our people through this crisis,” the DOF chief said.

For his part, Economic Planning Secretary Karl Kendrick Chua has three basic solutions to the fuel and food crisis. One, subsidize the jeepney and bus drivers. Two, import more food (using lower tariffs)—like rice, corn, pork, fish, chicken, sugar, and wheat. Three, plant, plant, plant.

biznewsasia@gmail.com

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