Inflation and the SONA

Published July 5, 2018, 12:00 AM

by manilabulletin_admin

Fil C. Sionil
Fil C. Sionil


Finally, the economic managers succumbed to the call of market forces to revise the macroeconomic targets, notably the inflation rate due to its continuous climb, largely on account of the upward movement in the price of petroleum products.

The inter-agency Development Budget Coordinating Council (DBCC) on Monday made a move to change the upward inflation rate target to a range between 3.0 percent and 4.5 percent and price of the Dubai crude oil to $55-$70 from the original $50-$65 per barrel. At the end of May, the price of Dubai crude has gone up 19.95 percent to over $73 a barrel.

Though the decision was prompted by the recent developments, the action taken was “nothing unusual.” Before the start of the second half of the year, DBCC reviews and makes necessary adjustments in the macroeconomic targets, taking into consideration market trends. “It’s a regular activity of the DBCC to make mid-year assessment. What was unusual was the earlier revision in the foreign exchange assumption because we don’t make changes on a quarterly basis.” In April, the peso-dollar rate assumption was revised to between R50 and R53 from R49-R52. The local currency has been called one of the worst performers among its regional peers, slumping to its lowest in 12 years.

Inflation could be likened to a tumor. In this case, it’s not benign but malignant that could metastasize, afflicting the conditions of other macroeconomic variables – the foreign exchange and interest rates. Its debilitating effect, specifically on purchasing power, bears down across all sectors of society.

Sources tell me that the elevated inflation may earn a special spot in President Duterte’s third State-of-the-Nation Address (SONA). Back in May, presidential spokesman Harry Roque disclosed the SONA will take a new format. The annual address is an opportunity for the Chief Executive to outline his vision for the country, government policies, and priorities. For this year, instead of the usual report card of accomplishments, the SONA topics will be led by the President’s unwavering fight against the drug menace and the anti-corruption campaign.

Should the issue of inflation be included, the technical working group of the Department of Finance (DOF) was tasked to present a comparable analysis of the price movements in the past 30 years, covering the presidencies of Corazon “Tita Cory” Aquino, Fidel V. Ramos, Joseph “Erap” Estrada, Gloria Macapagal Arroyo, Benigno Aquino III, and President Duterte.

As part of the preparation, an infograph was recently presented to Finance Secretary Carlos G. Dominguez, showing that inflation has been on a downward trajectory in the past three decades. The average inflation rate in the first the two years of the Duterte administration stands at 2.8 percent with the highest recorded during the time of Tita Cory at 10.3 percent. Understandable. The macroeconomic fundamentals were on a wayward path then as the country was recovering from the 20-year rule of the Marcoses.

Heard from the DOF walls, the SecFin said to be pretty much “annoyed” by the negative commentary of a former DOF undersecretary that the infograph was a bit off, comparing the first two years of the President Duterte to the average of his five predecessors.

Will inflation be incorporated in this year’s SONA? It might well be. After all, poverty alleviation is one of the five pillars of the program of the Duterte government.

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