Gut issues

DEMAND AND SUPPLY By Boo Chanco

New taxes were blamed by more than half of Citibank’s prime Citigold clients as the biggest contributor to high inflation when they were asked to express their views using their smart phones last Tuesday afternoon.

Citibank’s most valuable clients were clearly worried about inflation on the day Citibank was hosting its annual economic briefing for their most valuable clients.  It was announced that morning that inflation for January was at an unexpectedly high four percent. Actually, it is a case of bad timing for TRAIN.

Oil prices have more or less stabilized on the high side where OPEC wants it to be and that’s bad for oil importing countries like ours. Then the peso had been depreciating since last year to the low 50s to the dollar. So there’s a double whammy as higher international oil prices and the weak peso exaggerate the impact at the pump.

Of course traders will take advantage of the situation and raise prices of their products as much as they can and blame it all on TRAIN. DTI’s price watch had obviously not been effective.

Inflation is also highest in Metro Manila at 5.4 percent compared to the national average of four percent. Indeed, Metro Manilans have been complaining about rising prices well before government announced the four percent figure. Technocrats dismissed these reports as anecdotal.

Finance Secretary Sonny Dominguez was quick to say he “finds it hard to believe that the implementation of TRAIN... had any significant effect on prices… unless of course merchants took advantage of the law and raised prices on old inventories.”

Indeed, we haven’t seen TRAIN’s full impact yet. The implementing rules are just being rolled out over the last three weeks.

BSP Governor Nestor Espenilla said the effect is temporary even as he admitted it was partly attributable to TRAIN’s effect on the prices of food and oil products. A BSP press release later gave details of what happened.

“Core inflation, which excludes certain volatile food and energy items as a means to depict certain underlying price pressures, rose to 3.9 percent from three percent the previous month…”

On the other hand, the uptick in headline inflation for January was also traced mainly to higher prices of food, beverages and domestic petroleum products.

Food inflation went up as most food commodities, particularly corn, meat, milk and eggs posted higher prices during the month. Government also blamed bad weather pushing up prices for rice, fish and vegetables in some areas. Transport prices also rose because of higher international crude oil prices as well as increased taxes under TRAIN.

As if these problems are not enough, news filtered out that NFA only has three days of buffer stock of rice. NFA said it is 32 days. Philippine Statistics Authority (PSA) reported last month that rice inventories of the National Food Authority (NFA) fell 72 percent to 156,600 metric tons in December 2017 from 564,200 MT the year before.

Anyway, Sen. Nancy Binay cited a report from PSA showing prices of regular and well-milled rice rising by P1 to P3 pesos per kilo in six regional centers including Kidapawan City, Naga City and the National Capital Region.

Malacañang, however, insists there is enough rice supply. Cabinet Secretary Leoncio Evasco who heads the NFA Council confirmed there is a standby order for 250,000 metric tons of imported rice which should be enough to cover the market. He did not say when the imported rice will arrive.

What we have here are explosive gut issues that must be attended to quickly and decisively. There may be enough commercial rice in the market, but the masa buys NFA rice. They don’t care much about federalism or ChaCha, but the price of rice, fish, meat and transportation are important gut issues for them.

It is not enough to blame unscrupulous traders for taking advantage of new and higher taxes or a public perception of inadequate rice inventories to jack up prices. That’s what these traders do. It is government’s job to make sure they are stopped.

Government’s problem is also due to a policy vacuum following an announcement of government’s intention to end NFA’s monopoly on rice importation and allow the private sector to do it. A bill is pending in Congress that will introduce tariffs on imported rice and remove NFA import monopoly. But it is taking forever to pass a Congress controlled by the Duterte alliance.

This failure has made it easy for the cartel inside NFA and their favored traders to create this public state of anxiety for their benefit. An emergency situation will force NFA to do the importation and delay implementation of the new and better policy of shifting importation to the private sector. 

Mishandling rice supply always has serious political consequences. I am surprised the Palace is still talking of a standby order for 250,000 metric tons when they should be announcing when this shipment is arriving in Manila. Someone is sleeping on the job and President Duterte will needlessly lose political capital.

As for TRAIN being blamed for the spike in inflation, it seems DTI’s price watch wasn’t watching that well. DOF has also failed to explain TRAIN to the grassroots. Then again, even the well-informed – typified by the Citigold investors – also have the impression TRAIN is mostly to blame for the spike in inflation.

I have seen this problem before when I was at the Ministry of Energy. Similar increases in oil product prices provoked exaggerated increases in the prices of prime commodities because traders have an easy target to blame.

People refuse to hear our message that energy is not that large a component of most prime commodities to justify outrageous price increases. This is where government regulation, like DTI’s price watch, should come in.

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco

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