It would be great if we could have a sensible discussion about the current increases in consumer prices. Unfortunately, if you look at most of the commentary, it can be summarized in two thoughts: “Inflation bad. Government bad.”
The first thing to consider is if the Philippine economy is even experiencing “inflation.” While it is true that we have experienced a general increase in prices for several months now, that does not necessarily mean that we are in an inflationary period by the genuine definition of the word. Inflation is being used like saying someone is like Hitler.
Does that mean a person being like Hitler is a genocidal warmongering maniac or a vegetarian male with one testicle? The classic definition of inflation—going back to as far as the Roman Empire—was the debasement of the currency. This happens when the government either reduces the precious metal content of coins or by rapidly increasing the money supply. In 170 under Marcus Aurelius, the denarius contained 75 percent silver. By the time of Emperor Gallienus in 255, the coin was only 5 percent silver. Prices went up to reflect the devaluation of the money.
The Venezuelan government increased the money supply in 2016 by 202 percent from a year earlier. In December 2017 alone an additional 14 percent was added to the economy in one week. Prices responded accordingly and that was the “hidden tax” of inflation that they talked about.
However, a price hike outside of government currency manipulation—which is always for political purposes—is not inflation by the accurate definition.
Current Philippine price increases are partly caused by additional taxes. No question about that. Current price increases are also partly caused by higher global oil prices and the depreciation of the peso. Philippine inflation is also much higher than Indonesia, Thailand and Malaysia.
But this is what the commentators ignore: Malaysia’s government has allocated 3 billion ringgit (P40 billion) to subsidize pump prices until the end of 2018. Further, Malaysia is a net oil exporter and a major beneficiary of rising oil prices.
Thailand’s Bt31 billion (P51 billion) State Oil Fund will absorb 50 percent of any increase in diesel prices. The government will cover 50 percent of the increase in the global price increase of crude oil. Prices of liquefied petroleum gas (LPG) are also capped, using funding from the Cooking Gas Fund that is expected to cost about Bt346 million (P58 million) per month. Indonesia’s fuel subsidy costs are estimated at 0.8 percent of gross domestic product, which in the Philippines is equal to P133 billion.
Electricity costs in the Philippines are high; now the third highest in Asia, according to International Energy Consultants Managing Director John Morris. However, Morris also said, “Government subsidies continued to make power rates artificially low in markets like Thailand, Indonesia, Malaysia, Korea and Taiwan.”
The lack of fuel and electricity price subsidies from the government is also an important reason prices are higher in the Philippines. Subsidies can obviously reduce prices in the country. But unless there is a magic money tree at Malacañan Palace, there are only two choices to fund subsidizes: Either taxes must be raised or the government must borrow more money.
Certainly, we can point a giant finger at government corruption, incompetence and inefficiency. Yet those are only going to be solved with long-term action backed with the political will that reaches far beyond the Office of the President. That has not happened for decades and our elected leaders are to blame.