When the circus came to town, it was the midway sideshows that were most exciting. Carnival barkers would entice customers to come inside.
“Hurry, hurry, hurry! Step right up. See the greatest, the most sensational show in town. See Little Egypt do her famous dance of the Pyramids. Meet Gertler and Myrtle, the two-headed turtle!”
Maybe the most famous American sideshow was “Chang and Eng—The Siamese Twins.” The conjoined twin brothers fathered 21 children and died millionaires. Are you in “circus mode” yet?
The reason I ask is that the next sideshow on the Philippine economic scene may be “Stag and Flation”—“The Economy Killers.”
The usual analysis is that “stagflation is characterized by slow economic growth and relatively high unemployment—or economic stagnation—which is accompanied by rising prices or inflation.”
So, it is lower and/or slower economic growth, higher unemployment, and increasing prices.
The term was first used in the 1970s when developed nations experienced rapid inflation and high unemployment because of the oil price “shock.” During the past 40 years, systemic inflation—not price increases resulting from an imbalance in supply and demand—has usually been tied to the global crude oil price. The other primary factor has been “currency-induced cost push inflation” when an economy’s currency is in a depreciation trend.
Here is the reality, though. Since the 1970s, rising price levels during periods of slow or negative economic growth have become almost the “normal” rather than the exception. This is partly because when a company experiences lower sales, it tends to increase prices to increase revenues. We are seeing that now. It seems like every restaurant has increased its menu prices even slightly to make up for the months of being closed.
Maybe the circus is already coming to town. “As food prices soar, Duterte allows return of ‘stagflation,’” says one economic “expert.”
However, gross domestic product is an economic data that wears many disguises. And you can pick whichever one you want to prove your narrative. Take GDP growth.
The Philippine economy shrank 8.3 percent year-on-year in the fourth quarter of 2020. Bad. But that is better than the 16.9 percent contraction in the second quarter of 2020 and the 11.4 percent in the third quarter. Good. The Philippine GDP went up by 5.6 percent quarter-on-quarter in fourth quarter of 2020 versus the third quarter. Also good. Therefore, the actual GDP trend through the economic disaster of 2020 is improving.
The annual inflation rate rose to 4.2 percent in January 2021 from 3.5 percent a month earlier, meaning the “basket of goods” cost 4.2 percent more in January than during the same period a year earlier. That’s bad. But then again global crude oil prices are up almost 150 percent from April 2020. Even with all his authoritarian superpowers, there is little Duterte can do about that.
The unemployment rate in the Philippines surged to 8.7 percent in the December quarter of 2020 from 4.5 percent in the same quarter a year earlier. That is not just bad. That is terrible. However, in July the unemployment rate was nearly 18 percent.
These are perilous times. We are at the mercy of forces that no one—government or “experts”—can control.
But there are tens of millions of Filipinos that wake up each morning concerned about putting food on the table and about their children’s future. There is a tiny cadre that wakes up each morning thinking how to push their political agenda, comfortable with their well-stocked refrigerators and gas filled cars. No wonder “coulrophobia” or fear of clowns is a real condition.
E-mail me at mangun@gmail.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.