Blame-passing

There is one strange economic theory coming from the Duterte administration’s economic managers relating to inflation. After the average increase in the prices of essential goods and services shot up to more than nine-year highs, they are pinning part of the blame on what they called off-the-mark projections of private economists and analysts.

Finance Secretary Carlos Dominguez III said the government would keep tabs on economists’ inflation and economic growth forecasts next year to make them accountable for their projections, which consumers and businesses use in making decisions.

He noted that private analysts and economists should be made accountable when they put their projections out in public.

Dominguez argued that when these forecasts are published, these eventually influence decision-making and inflation expectations.

The official was referring to the Department of Finance (DOF) finding of a 15-percent margin of error in some of the inflation forecasts, which he said was way “off the mark.” (The Inquirer has noted that the monthly inflation forecasts of the DOF itself were also mostly off the mark, with an economist computing a margin of error of about 13 percent.)

Such theory appears implausible. If that were true, will inflation, for example, for the month of December, go down to 2 percent if a preponderance of private economists and analysts go public with such a projection? Or will the exchange rate also improve to P25 to $1 if the same majority of economists and analysts forecast so? Will economic growth shoot up to 10 percent if these economists and analysts project such a rate?

Big conglomerates, financial institutions in particular, employ economists to provide management an economic picture or possible business scenarios to guide them in their decision-making tasks.

Stockbrokerage firms also hire analysts to come up with forecasts to guide their clients about investing in stocks — which stocks will most likely gain the most under a high interest rate regime or when oil prices are rising, for instance.

They also have different economic forecasting models, thus the different projections on economic indicators like inflation and the exchange rate.

For instance, when making inflation forecasts, most economists and analysts take into consideration such factors as the direction of petroleum prices at the pump, whether Meralco’s electricity rates rose or declined during a given period, as well as the price monitoring reports from other government agencies.

In short, they do not use dart boards or a “tambiolo” to make an intelligent estimate of what they think inflation, the exchange rate or economic growth will be for a particular period.

Instead of fault-finding and blame-passing, the Duterte economic team should focus on addressing the real causes as to why prices of basic goods and services are trending higher. Usually, it is caused by supply bottlenecks (the basic economic theory that demand exceeding supply leads to rising prices and vice versa).

This happened in the case of rice and other agricultural products earlier this year. The same with the rise in crude oil prices last October that, in turn, led pump prices of gasoline, diesel and LPG (essentially for cooking) higher, and the domino effect on prices of transportation and processed goods. Add to that the weakening peso against the dollar that made imports of everything more expensive.

The rice tariffication bill now awaiting the President’s signature will help ensure that rice supply will always be available to prevent shortages (artificial or otherwise) that cause prices to spike. The liberalized rules on the importation of other food items will also be of help in addressing supply-side issues.

For the long term, the government needs a plan to reduce the country’s dependence on imported oil products. Renewable power sources such as natural gas, solar and wind getting a bigger share in the supply mix is one workable idea.

There are a number of ways to address inflation. Blaming private economists and analysts is not one of them.