Is it all just band-aid solutions for the economy?
Inflation just can’t stop inflating. (Photo: LGT)
When it comes to dealing with money, we usually think that the higher the number, the better—unless it’s a bill we have to pay. Well, buckle up because those bills are about to get higher, further, faster.
The US Labor Department revealed in their recent Consumer Price Index (CPI) last Wednesday that prices have increased by 9.1% from last year—a number that was beyond the 8.8% estimated projection of economists. It was also the highest reported inflation hike in over four decades. We haven’t seen a rate this big since November of 1981.
The main one to blame for this is yet again, gas prices which grew by 11.2% from the prior month and 59.9% annually.
Ian Shepherdson, chief economist of Pantheon Macroeconomics, had a very powerful words to say in reaction to the news. "Ouch,” he said. He did, however, state that this would be the last time prices would be increasing since they had probably hit its peak during the month of June. He damn well better be right because my wallet can’t take it anymore.
But wait, maybe higher isn't too bad
How is the Philippines taking it? About as well as you would expect. The Bangko Sentral ng Pilipinas (BSP) raised interest rates prior to its policy meeting. BSP Governor Felipe Medalla announced last Thursday, only a day after the US graced us with the fantastic news, that an interest rate hike of 75 basis points will be implemented. This bumps up the key policy rate to 3.25%.
The number is all the more shocking when comparing it to just the 25 bps increase from last June.
Medalla said in a statement that “By taking urgent action, the Monetary Board aims to anchor inflation expectations further and temper mounting risks to the inflation outlook. In particular, policy action is intended to help manage spillovers from other countries that could potentially disanchor inflation expectations.”
Raising the interest rates is more like a band-aid solution than anything else. The higher the interest rates means the higher bank loans cost. This can drive the public to be more stingy with their spending. The flipside is that the demand rates will also start to plummet which will then lead to lower sales for companies.
Them's the breaks
While it is a bummer indeed, we really can’t blame the BSP for the move. We are living in unprecedented times with one historical event after the other. Healthcare is in disarray, countries are at war, and supply chains are in critical condition. All we can do is wait it out and hope that July has better surprises.
It’s already starting off on the right foot anyway. A recent oil price drop last Tuesday graced motorists with gasoline and diesel decreasing by P5.70 and P6.10 a liter respectively. Kerosene also dropped by P6.30 a liter.
One Patriotic Coalition of Marginalized Nationals (1-Pacman) party-list Rep. Michael Romero suggested last Monday that the Oil Price Stabilization Fund (OPSF) should be brought back in order to lessen the blow of oil price hikes in the Philippines. The OPSF was first created by late President Ferdinand Marcos back in the 70s when the world was also experiencing an oil crisis.
“Since the government is not agreeable to the suggested suspension of excise taxes while the cost of crude is above $80 per barrel, we could use part of these impositions as a price stabilization fund to provide relief to the public from increased fuel and consumer prices,” Romero said.
Romero believes that the buffer fund would help the public from having to take the brunt of the weight of the price increases given that the situation in Ukraine remains to be “volatile and elevated.” This is also considering that ongoing efforts to respond to the ongoing pandemic would have other economies scrambling for oil to fuel their factories.
In the meantime, I suggest that you fill up your tank to the brim while you can. Who knows if the next thing you’ll be reading here is me saying gas prices have once again increased, or another price drop is coming soon. We have yet to see—if it will be the former, then, I told you so. If it’s the latter, then I’m sorry.
