“Marching to a different drum, the Philippines is drifting away from what could be a friendly neighbor, into the embrace of a former colonial master which several times in the past has proven to be an inconstant protector”
The good news from the economic front came last week from the Philippine Statistics Authority, which measured the rate of inflation in March to be 7.6 percent, a whole percentage point down from February’s 8.6 percent.
The bad news is it ain’t over till it’s over, or when the fat ladies of higher oil prices, food supply problems and core inflation stop marching in.
The good news is that further interest rate hikes which have been the BSP’s go-to solution to curb inflation is now on a wait-and-see mode, at least until May when, if the April indices are yet untamed, another round of interest rate adjustment could be made.
But the really bad news is that just when we were sighing relief at the one percentage point drop in the price index, OPEC + announced they will further reduce their daily output of the black gold by 1.16 million barrels.
Dutifully, or so it seems, our local oil cartel distributors increased their pump prices for gas and diesel last Monday, even if the OPEC + output reduction will not take effect until May.
They will continue to increase in the next two months, unless the US pumps more from it’s deposits, or China’s pent-up demand cools down.
Initial reaction has been for oil to go up to $80 per barrel, but who knows how it will be by May? $90 per barrel is likely to be the benchmark for the entire 2023, further fueling inflation in countries like ours which are totally dependent on imports of oil and derivative products.
But there’s more bad news in the near horizon.
Except for a few island provinces and most of the BARMM where eating pork is haram, the ASF has infected us to a degree where not only our lechon will become scarce, but so too the liempo and kasim we use for our weekly adobo or sinigang.
How much longer provinces like Bohol and Mindoro can prevent the dreaded swine disease from infecting their stock remains to be seen.
For when these island provinces go the way of Cebu and Batangas, then expect liempo to go up to 480 to 500 per kilo.
That will make our trading partners, especially the US and Europe, happy, because our food processors and restaurants will surely import more frozen pork cuts from them.
But that will further decimate our backyard hog producers. The cycle turns vicious.
Actually, food inflation in the first quarter averaged 10.6 percent, contributing 3.3 percent to our 7.6 percent inflation rate in March.
Alright, so onions are now lower by 300 percent compared to January, but then how much of those tear-inducing aromatics contribute to the food basket?
The bad news is, the DA is nervous about the price of rice. As it should be.
Their spokesman has sounded the alarm, citing the high cost of fertilizer may have impacted our summer produce on the low side, and with domestic buying price of palay shooting up to as high as 23 per kilo, the market is feeling the pinch this early, when harvests have just started.
Meanwhile, because supplying Kadiwa has become NFA’s sole concern these days, just to prop up the chimera of 20 peso per kilo rice, we hardly have any reserves in the hands of the State, so the privates anticipate opportunity.
But wait! With high palay prices, the privates can sell at around 50 pesos per kilo which is still high for the average consumer, who has been content with stable 40-43 peso rice on account of a 3.8 million import of the commodity last year.
But there’s more bad news on the rice front.
The tradeable export volume of the few rice-exporting countries, almost all of them in Asia, is down to 6.6 percent of output.
Normally it is 7.5 percent of total production, the rest being for their own consumption. So a drop of almost 1 percent has devastating price consequences.
So we anticipate higher prices come the lean months, which is from July till end- September, with rice imports no lower than $450-480 per metric ton, FOB, higher depending on quality.
By then, El Nino shall have intensified, meaning less rainfall from May and less rainfall during the planting season.
But El Nino also means warmer sea temperatures, which means when the typhoons from the Pacific come barreling in, they become stronger than usual.
Strange though it may sound because El Nino means less water from the heavens, that storms get more strength when they pass through warmer seas.
And that’s very bad news, if the typhoons are strong come August and late September when the palay crop is pregnant with grain specially if the typhoons hit us in the wrong places like Central and Northern Luzon.
Then again, to continue fighting supply-pushed inflation, central banks are likely to withdraw more liquidity from the market, and that could induce recession.
As we write, we anticipate first quarter economic performance to be slow, with consumer spending starting to abate, and banks being too cautious with their lending.
If the travails of the banking industry, recently roiled by Silicon Valley and Credit Suisse, get more widespread with monetary tightening, more “small” banks might cave in.
Nothing is as bad as panic in the fiduciary realms.
How will the US Federal Reserve act/re-act to the changing inflationary situation is key. Balancing the tasks of taming price indicia versus the risks of pushing the economy into a recession in a forthcoming election year can be very tricky.
Maintaining price stability, economic growth and keeping macro-finances in order is a most difficult thing.
The doomsayers are predicting a stock market crash, which is bad for everyone, from Wall Street to London and Tokyo, as it will be to struggling markets like ours.
And just as “politics is nothing more than concentrated economics” per the venerable Jose W. Diokno, the political consequences of an American recession could re-draw the balance of power in a world where China, Russia, Iran and Saudi Arabia are becoming fast and strong economic allies.
Already, Emmanuel Macron, enfant terrible of modern-day French and European politics, is playing it safe by courting China and taking an arms-length on the issue of Taiwan which America is using to needle the PRC.
Does Macron foresee the political and economic realities which his predecessor two centuries ago, the great Napoleon, foresaw when he observed that once China awakens from slumber, the whole world will tremble?
It took the US with so many wars posturing itself as constable of the world, 200 years to become the world’s dominant economic power.
It took an awakened China, without going to war against any other country (yet) to achieve its current economic power in 40 years, second to America, and perhaps richer in another 10 to 15 years.
The rest of ASEAN, from Singapore to Indonesia, to Malaysia, Thailand and Vietnam, apart from close Chinese allies like Laos, Cambodia and Myanmar have seen this, and are carefully defining their national interest in terms of closer China ties.
Marching to a different drum, the Philippines is drifting away from what could be a friendly neighbor, into the embrace of a former colonial master which several times in the past has proven to be an inconstant protector.