The crisis is govt’s lack of empathy
BEN KRITZ
INFLATION is not actually a problem, and anyone who says otherwise is a malcontent just trying to stir up trouble among the public.
That was the official position of the Duterte administration expressed by Finance Secretary Carlos “Sonny” Dominguez 3rd and Budget Secretary Benjamin Diokno last Friday.
The administration’s economic dynamic duo have been consistent in delivering that message ever since inflation began rising at the beginning of this year, but apparently felt it needed to be reiterated a little more forcefully in light of alarming news reports ahead of the approaching Typhoon Ompong.
It was feared the storm would do serious damage to crops in Northern Luzon. Agriculture Secretary Emmanuel Piñol earlier said the loss could be as high as P13 billion which would further raise already skyrocketing food prices.
“It [inflation]may be a serious problem for some people, but for the nation, in general, it’s not a major crisis,” Dominguez told reporters.
Diokno took aim at unfavorable media reports, adding that it is “irresponsible” to describe the latest inflation reading as “runaway,” or beyond the control of the BSP. “It is building a lot of panic in the minds of people. Our central monetary authority is very capable and we have to have a lot of tools,” he said. “The best term for inflation right now is ‘slightly elevated’.”
Headline inflation in August hit 6.4 percent, the highest level in nine years, and 0.7 percent higher than in July, when it was exactly triple the 1.9 percent inflation rate in June 2016. The inflation rate punched through the upper limit of the government’s 2.0 to 4.0 percent target range in March and has continued to rise. Inflation is not by any definition “slightly elevated.”
In July, headline inflation exceeded the 10-year average wage growth of 5.54 percent, which means that, in general, the nation’s buying power is shrinking. When that happens, it is, in general, considered a major crisis. It can be considered particularly so when the central monetary authority says (as it did just after the bad news about the August inflation rate was released) its policy tools alone are insufficient to arrest price increases, and the government has to resort to drastic measures such as the immediate massive importation of staple commodities to try handling the situation.
What Dominguez and Diokno have in their detached, ivory tower arrogance consistently failed to grasp is that they’re not fooling anyone. At this point, even the most economically ignorant understand that high inflation and the very tangible daily discomfort it causes everyone with less than a six-figure monthly income is the government’s fault. The administration’s basic economic program of increased public spending and substantial tax reform is not entirely responsible for the elevated inflation rate, but it is a partial cause. That was to be expected.
Knowing that, however, they failed to determine the scope of the economic program’s impact on inflation – a Finance official admitted as much in a congressional hearing – and take some steps to counteract it. Had they done so, it would have at least counteracted some of the impact of other factors such as high fuel prices, the weakened peso, and below-forecast agricultural production. None of those other factors were sudden shocks that developed overnight, and were in fact already identifiable risks when the tax reform program and the expanded national government budget went into effect in January.
Yet nothing was done, except to publicly imply that anyone who expressed concern over rising inflation was somehow being unpatriotic.
Inflation is now a crisis because the administration’s economic team lacks empathy. The public does not like higher prices. Inflation of any noticeable degree occurring at any time, for any reason, is universally viewed negatively. Even if there was not a single thing that could be done to reverse or slow the inflation rate, any message coming from the government must be sensitive to that negative public perception. Even now, it is not.
The government is on the one hand, chiding the public for “irresponsibly” complaining about “slightly elevated” inflation, and on the other, preparing to roll out a string of extraordinary measures to try to reduce it.
It will take months for those measures, which largely involve loosening import restrictions on basic commodities, to take effect. There is a good chance that their positive impact will be less than anticipated as well, because they were developed without taking into account the likely losses from this weekend’s storm. Because the administration has already lost most of its public credibility when it comes to inflation, simply announcing the measures will not have much of a positive effect on consumer sentiment, and the inevitably delayed real impact of those measures will only deepen pessimism.
As positive consumer sentiment decreases, so does consumer spending, and as a consequence, overall economic activity is reduced. Coming as it does at the annual make-or-break season for many retailers and producers, it leads to the possibility that the Philippines’ admirable economic growth rate – which, at 6.0 percent in the second quarter is already showing signs of being a bit wobbly, since that was at least half a percent below the government’s and analysts’ expectations – is going to slip further.
ben.kritz@manilatimes.net
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