In American politics there is an old saying, "It's the economy, stupid." In Philippine politics there is a similar saying, "It's the stupid economy." Actually I just made that up. Kind of like how it seems the Philippine government is making up it's economic policies as it goes along. Let's look at a few headlines and see how this story is developing.
The inflation numbers for February were released recently and they were a bit high.
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| https://www.rappler.com/business/197498-philippines-inflation-rate-february-2018 |
But not too high.
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| http://news.abs-cbn.com/business/03/06/18/espenilla-faster-february-inflation-in-line-with-expectations |
Bangko Sentral ng Pilipinas Governor Nestor Espenilla said Tuesday the rise in consumer prices last month was "in line" with expectations.
The consumer price index rose 3.9 percent in February, higher than 3.4 percent in the previous month based on 2012 prices. The January CPI was computed using 2006 costs.
"The elevated February inflation figure is in line with our updated forecast for a temporarily higher inflation than target range in 2018 due to transitory factors," Espenilla said in a statement.
"Our forecast remains that inflation will decelerate back to well within target in 2019 whether based on 2006 or 2012 index," he said.
The message is don't panic. Everything is fine. We have taken factors into consideration and were expecting the inflation rate to be higher. It's a hiccup and will adjust itself soon enough.
But even though this is expected to be temporary the BSP said they were going to investigate to see if policy changes were warranted.
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| http://www.gmanetwork.com/news/money/economy/645644/bsp-to-study-if-inflation-rate-calls-for-policy-change/story/ |
“The operative word is temporary. How temporary is temporary is what needs careful analysis,” he said.
Yes how temporary is temporary? Is it perhaps four more years? That is the time Duterte has left in office and much of the recent economic rollercoaster has been attributed directly to his infrastructure programs.
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| https://www.reuters.com/article/us-philippines-economy-infrastructure/dutertes-build-build-build-plans-hit-philippine-peso-idUSKBN1AM01R |
With these projects on the fast track imports of capital goods have increased, exports have decreased, and the peso continues to weaken.
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| http://business.inquirer.net/247402/trade-gap-widened-3-32b-january |
The surge in imports had reversed the current account to a deficit, which had the market worried and pulled the peso weaker in recent months.
At end-January, the peso depreciated to 51.341:$1 from end-2017’s 49.958:$1.
A component of the balance of payments, the current account was expected to swing to a $100-million deficit in 2017 from the $600-million surplus in 2016 amid the government’s push to ramp up infrastructure investments leading to a surge in imports of capital goods.
This year, the current account deficit is seen to swell to $700 million.
Economic managers had said that as the administration embarked on the “Build, Build, Build” infrastructure program and with expectations of sustained robust economic growth, demand for imports would remain strong in the near term.
The peso has been weakening slowly and steadily since 2016. Despite that fact economists have been quick to reassure everyone that this is only temporary and that it is actually a good thing.
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| http://news.abs-cbn.com/business/10/02/17/peso-weakness-vs-dollar-temporary-bdo-unibank |
The peso's decline to 10-year lows against the dollar is "temporary" and does not signal trouble for the economy, an analyst said.
A weak peso also makes the Philippines more attractive to foreign investors, Ravelas said.
"The weaker peso, in the eyes of foreign investors, makes it cheaper for them to invest in the Philippines," he said.
"A weaker peso is good for OFW families because they have more money to spend," he said.
Could the weak peso be one of the reasons the Philippines has been listed as the number one country to invest in in the world? If so then that means any growth in foreign investment will also be temporary.
According to the DOF the weak peso is one of the reasons for increased inflation.
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| http://business.inquirer.net/247358/dof-blames-weak-peso-profiteering-high-february-inflation |
Beltran also said “only a little less than 10 percent could be attributed to excise tax adjustment under TRAIN.”
If there is one thing the government does not want to blame for inflation it is the TRAIN bill which has raised excise taxes and increased consumer prices.
The TRAIN law is only 2 months old so it would be better to give it a few more months before it's impact can truly be assessed but it does seem as if it is having a negative impact on the economy and contributing to the rising inflation. And after all the reassurances that the February numbers were just fine now the narrative is that inflation will continue to rise.
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| https://business.mb.com.ph/2018/03/11/inflation-likely-to-stay-above-4-bsp/ |
The average inflation rate for this year will exceed four percent and breaking the government target, based on data and trends that the Bangko Sentral ng Pilipinas (BSP) keeps track of for the 2018 path.
“The BSP expects inflation, using the 2006-based CPI (consumer price index) series, to average slightly above four percent in 2018,” according to BSP Governor Nestor A. Espenilla Jr.
Espenilla has already stated that despite breaking the target, inflation will not top five percent for this year and that average inflation “is expected to return to within target range in 2019, settling slightly above the midpoint of the same target range.”
Will the rising inflation be temporary? Will the rate not top 5% this year? I doubt the DOF and BSP can say this without a note of caution on their tongue. After all this is the same song they have been singing about the peso since 2016.
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| http://business.inquirer.net/211439/peso-weakness-seen-as-temporary |
The peso’s weakness amid a stronger US dollar following the United Kingdom’s “Brexit” vote will only be temporary even as the local currency hit its weakest level since the national elections here last May.
On Monday, the peso closed at 47.03 to $1, the softest close since hitting 47.09 last May 6, the last trading day before elections were held on May 9. It was also weaker than last Friday’s close of 46.95:$1, which reversed gains made the previous day.
If election jitters weakened the peso more than a month ago, the UK’s vote to leave the European Union last week was to blame this time.
But moving forward, the peso is seen bouncing back amid a robust domestic economy.
The peso at 47:1 was alarming enough to some people but now that it is at 52:1 I don't think we can call it's weakness temporary. Nor do I think the positive forecasts of these economists cant be taken with anything but a grain of salt.
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