IT is hard to believe that it was only a year ago that a quiet Sunday morning turned into a frantic day by lunchtime as the Taal Volcano erupted. Little did we think then that the dark clouds and falling ash in Metro Manila would simply be a forerunner for a year of chaos and calamity.
However, 2021 is already starting out to be one of those “hold my beer” moments as this new year may attempt to “outperform” the old year. And the pandemonium in Washington, D.C., on January 6th is only one of evolving situations.
If you believe in looking at chicken bones or tea leaves to see the future, the just released inflation numbers for December may just be the beginning. Year-on-year inflation in the Philippines accelerated to 3.5 percent in December 2020, up from 3.3 percent in November 2020. While the yearly inflation rate was almost the same as in 2019 at 2.6 percent, slightly higher than the projected 2.5 percent, the worst may be yet to come.
Philippine inflation follows global crude oil prices regardless of the belief that it is the result of government policies. Yes, government policies do affect consumer price movement. But it is oil prices that determine the upside inflation trend.
The mid-April 2020 price of Brent crude oil was $21.44 and is now $56.25, up 160 percent. Since October 25, we have seen a 50 percent price increase. The global value of the US dollar as measured by the US Dollar index was down 10 percent in 2020. The Philippine peso gained 6 percent against the US dollar in 2020, which helped offset some of the inflationary effect of higher crude prices.
The Bangko Sentral ng Pilipinas has been holding the peso firm at 48 to the dollar since last August, and that is good if not a little unprecedented.
Further, along the line of oil prices, this past week Russia became the de facto controller—not Saudi Arabia—of the price of a barrel of oil. The nation that has the lowest average cost of production will set the price of any commodity. The country with the lowest cost of production among the major producers, when adjusted for currency effects, is Russia by a wide margin.
Other excitement for this full week of 2021 includes the first full week of Brexit as trade between the UK and EU ground to a halt in some sectors. Last Friday, DPD, the international delivery giant, said it was “pausing” its road service from the UK into Europe due to new border controls.
On Saturday, US Secretary of State Mike Pompeo said he was lifting restrictions on contacts between US officials and their Taiwanese counterparts. Examples of the restrictions include Taiwanese officials not being able to enter the State Department in Washington, but instead having to meet at hotels. This is a huge development for two reasons. If President Biden reverses this, it will reinforce the idea that he is very comfortable with China’s attitude in the region, including its South China Sea expansion. If Biden goes along, China’s anger may explode, as this is a reversal of decades of US policy.
But the ultimate “hold my beer” moment 2021 versus 2020 still belongs to the coronavirus. Just when you thought it was safe to go outside…. “I’m Back!”