With the US-Iran war still ongoing, the world watches with bated breath as to the eventual outcome. However, the world economy has suffered setbacks that will definitely see a real risk of stagflation.

The closure of the Strait of Hormuz and the bombing of oil refineries has sent oil prices spiraling into the stratosphere, and with it, the rest of the economy will start an upward trend in the prices of essential commodities resulting in inflation.

Already, we are seeing a decrease in economic activity as people pause their spending to await further developments. Inflation will definitely set in, and the with further erosion of purchasing power, high unemployment and recession will ensue, resulting in stagflation (stagnant economy+inflation).

The worst affected will be, as usual, the minimum wage earners, informal economy workers and the unemployed, which ranks will be swelled by those who will be laid off due to business losses and poor sales. The middle class, already besieged from all sides, will experience a reduction, with many falling back into poverty.

More than ever, we will need social safety nets for the majority of our population. While community pantries and “ayudas” are useful and necessary at this point, they will not be sufficient in the long term. We need more affirmative action on part of the government to relieve the pressures on the economy.

The immediate action should be to reduce the inflation rate, which will help consumers to increase purchasing power. And how can this be done? Easily, the best move government can do is to suspend the fuel excise tax and the VAT on both fuel and essential goods. Vietnam has done this quickly. Other countries like Ireland, Sweden, Cyprus have implemented similar measures to soften the impact of the current crisis. Germany, Belgium, the Netherlands, Cyprus, Finland, Latvia, Brazil and Chile have all suspended or reduced taxes on essential foodstuffs, fuel,

Our government has so far not acted on this matter with urgency, in spite of the law passed enabling the president to temporarily suspend or reduce fuel excise taxes. Fact of the matter is, our people urgently need the relief compared to more developed countries with better social safety nets.

Some politicians have argued that suspending or removing VAT will be a heavier burden for the government and will cause ongoing infrastructure projects to stall. Online pundits say it will reduce the sums that they can steal from government coffers, complete with empty suitcases.

But the truth is, we will see immediate reductions in prices of prime commodities with VAT suspension, thus affording much needed relief for our consumers. That in turn, will stimulate the economy by people having better spending power. Remember, VAT is levied on all transactions, so a product that goes through several transactions will have VAT at every point. Remove VAT and the price reductions will be dramatic. It may avert economic contraction and recession, thus preventing stagflation.

What’s worse is, without tax relief, there will be widespread hunger and resultant social unrest. Filipinos are patient, though if their children are starving, they may resort to violence and crime just to feed their families. This administration is already beset by issues of massive corruption, with no big fish thrown in jail up to now. It can’t afford to go easy on the energy crisis unless it wants destabilization moves by its erstwhile partners, now opponents, who will definitely exploit the issue to no end.

The government is leaning more towards fuel subsidies for public transport. Though it is a necessary, short-term measure, it is considered harmful in the long run. The massive spending on subsidies will entail long term debt and undermine fiscal stability. It will also undermine the eventual shift to renewable energy unless the subsidies are for shifting to renewable energy.

We are now reading about the farmers letting their crops rot in the field because they can’t afford to harvest and transport to the marketplaces. What the government needs to do is assist our farmers at this time of dire need. Why not send our military to assist in harvesting of their produce and transport them to markets? It will not only help the farmers, it will also make the produce more affordable to the rest of the population. Better yet, have the Department of Agriculture market their produce directly to consumers. Let’s protect our farmers for when the time comes that food importation becomes prohibitive, the entire country will starve.

The government should really move fast during this period of uncertainty and danger, not just internationally but locally as well. It should start behaving as the servant of the people rather than the other way around. Or it may find itself at the receiving end of public opprobrium and God forbid, massive unrest.