A more coherent act vs inflation
Just when we thought we had slain inflation in the Philippines, this monster is once more rearing its ugly head in other countries around the world.
Indeed, we are already starting to feel the pinch of higher prices once again via the rising cost of rice, which is a staple food of Filipinos, and petroleum on which local industries depend.
Yet, this reversal of the inflation downtrend is not something that has happened overnight. The cost of rice has been creeping up for several months now, while the prices of gasoline and diesel have been on the uptrend for the last 10 weeks.
There is no way our policymakers can claim to have been caught flatfooted by this phenomenon as the price increases have not come in a single sharp spike, but through a long-drawn-out upward trek that is like a noose slowly tightening around the collective necks of our poor citizens.
Instead, it is the government’s textbook-defying response to this brewing crisis that has caught Filipinos flatfooted, as it has gone against every rational course of action that is normally prescribed as a solution in situations like this.
No less than Finance Secretary Benjamin Diokno, the head of President Marcos’ economic team, admitted that he and his Cabinet colleagues were shocked by the price controls ordered by the Chief Executive last month.
The sad thing about this situation—of the proverbial right hand of government being unaware of what its left hand is doing—is that Mr. Marcos himself issued an executive order just last May creating a high-powered group of department heads meant precisely to craft a coordinated policy response to the brewing inflation crisis.
Under Executive Order No. 28 issued in May this year, the President created the Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO) as an advisory body to the Economic Development Group to “directly address inflation,” particularly on prices of key commodities like food and energy.
Granted that little has been heard from this IAC-IMO, which includes the heads of several key departments, by way of concrete anti-inflation moves over its three-month lifespan to date but crafting policies to address deeply rooted structural problems takes time. And if the powers that be had gotten impatient for solutions in the interim, this is definitely no excuse to impose moves that go against every economic tenet there is, most notably the very basic law of supply and demand.
But what’s done is done, and the Marcos administration now has to focus on delivering concrete solutions to this brewing crisis going forward.
The first step would be to repeal EO 39, which imposed mandated price ceilings on rice, as soon as possible because there are already anecdotal reports emerging of retailers rationing the rice they sell to consumers at the prescribed price caps in an effort to limit their losses. Failing to roll this order back will result in retailers stopping the sale of these commodities altogether, thereby pushing prices up further.
The next step is to convene all the collective economic and political minds of the administration and decide on a single, coherent policy (in consultation with all key stakeholders from the private and the agriculture sectors, of course) in order to mitigate inflationary effects.
The best policy would be to temporarily cut import tariffs on rice (down to zero, if necessary) until prices stabilize at the levels deemed appropriate by government. It will be unpopular with farmers, but the pain will be temporary.
In the long run, government should focus on delivering better technical assistance to the farm sector to improve rice yields and pushing for structural reforms in the logistics chain where supply bottlenecks often occur.
Most importantly, his entire official family and Cabinet must formulate policies in unison to solve these daunting challenges.
Two millennia ago, the Bible may have admonished the faithful to not let the left hand know what the right hand is doing in the context of helping the poor.
But in the context of modern day economics, it is critical not only for both the official policy side and unofficial influential side of the Marcos administration to be aware of each other’s moves but also to act in unison to address key challenges.
In the case of our reemerging inflation problem, government must get its act together to solve the same problem, rather than the left hand being left to its own devices, resulting in the unraveling of the work that the right hand is doing.
The President has a surfeit of political capital thanks to his 31-million-strong mandate from the Filipino people. As such, he must spend this capital making difficult decisions like hewing closely to established economic principles—like the law of supply and demand—instead of trying to accumulate more of it through populist policies like price controls that tend to aggravate rather than solve the problem.