Addressing the inflation problem


Nothing attracts the attention and concern of the average Filipino citizen more than an increase in the cost of living. Problems concerning the West Philippine Sea, the International Criminal Court, and a recalcitrant ex-military mutineer turned senator are suddenly inconsequential when the prices of prime commodities increase continuously at an alarming rate.

For the past four weeks or so, the nation’s economic planners have attributed the problem to one word — inflation. The problem is aggravated by the fact that the average citizen does not comprehend the meaning of that term. They are more concerned about what the government is doing about the problem.

From a simple perspective, the term inflation means a reduction in the purchasing power of the Philippine peso. It is often triggered by an extraordinary increase in the cost of an important factor which determines the market prices of prime commodities. The problem gets more serious when artificial shortages are created by unscrupulous dealers of vital products.

It appears that the principal reason for the current inflation is the drastic increase in the pump price of fuel. That, in turn, is caused by many factors.

One factor is the unstable situation in the Middle East brought about by the war in Syria and the violence in Iraq. This steadily pushes up the purchase price of fuel imported by the Philippines.

As winter approaches the northern hemisphere and the demand for fuel for warming homes and industries increases, the purchase price of fuel goes up even further.

Adding to the fuel price problem is the substantial tax imposed by Congress on pump prices of fuel sold in the Philippines.

The increase in pump prices will always trigger an increase in the prices of prime commodities because fuel is needed to transport people and goods, and fuel is necessary to generate electricity for the factories. It will also cause the prices of everything to go up. This results in a substantial reduction in the purchasing power of the peso.

The other factor — artificial shortages — is just as dreadful.

It is basic — the price of a commodity depends on how much of the commodity is available for sale, and how much the demand is for it. Therefore, when the supply of a commodity is substantially reduced, and there is no refurbishment, the price of that commodity will increase. The rate of the increase accelerates as the supply steadily decreases.

Under ordinary circumstances, the supply of commodities fluctuates on a seasonal basis, with natural calamities playing a role in this regard. There are times when there is more than enough of something, and times when it is the other way around.

Well aware of the correlation between supplies and prices, unscrupulous dealers in prime commodities form cartels and, in conspiracy with one another, they hoard prime commodities like rice, garlic, onions and pepper in secret warehouses. Eventually, a shortage is felt by the public and the prices of these commodities are dictated by the enterprising dealers.

Therefore, an artificial shortage can also trigger a reduction in the purchasing power of the peso.

Actually, price manipulation by cartels is prohibited under Philippine law. It is called “a combination in restraint of trade.” Under certain circumstances, it can qualify as economic sabotage.

The existence of such cartels is an established fact. A few months ago, a cartel manipulating the price of garlic was exposed in the Senate. Years ago, the late Manila Mayor Gemiliano Lopez, Jr. exposed the existence of a Chinese-operated rice cartel in Metropolitan Manila.

Speaking of rice, the National Food Authority (NFA) is mandated by law to maintain a sufficient supply of rice in its warehouses in order to stabilize the price of rice. If rice is readily available from the NFA, the rice cartels will have a very difficult time creating an artificial shortage.

Unfortunately, the NFA failed to live up to its mandate in recent times. As a consequence, the price of rice has been skyrocketing for the past several weeks, thus prompting an angry President Rodrigo Duterte to fire that incompetent NFA chief.

So what are the possible solutions to the inflation problem?

First, taxes on fuel should be suspended, if not eliminated. There are other ways to make up for the lost revenue as in transferring the taxes on organized gambling and the consumption of tobacco and alcoholic beverages. Moreover, there is no such thing as an unreasonable tax on the pursuit of a vice.

Better yet, the pork barrel fund allotment of each member of Congress should be abolished. Infrastructure projects are the concern of local governments, not the legislature.

Second, the government should immediately import prime commodities like rice, garlic, onions and pepper and have them sold in the markets. That stupid rule requiring supermarkets to pay a fee of about a hundred thousand pesos for a permit to sell rice for the NFA must be set aside immediately. Whoever thought of that rule should be fired.

Once the supply of prime commodities stabilizes, the NFA should always be ready to import anew, once the supply situation approaches an unsettling level.

During his term, President Ferdinand Marcos addressed the problem of fluctuating fuel prices by creating the oil price stabilization fund. Under the Marcos measure, a motorist pays a separate fee — a fixed number of centavos (yes, just centavos) for each liter of fuel purchased — which goes to the fund. Whenever there is an extraordinary increase in world fuel prices, the sudden increase is absorbed by the fund. As a result, the people are spared the trauma of sudden increases in pump prices and in the cost of prime commodities.

Sadly, that Marcos measure was repealed by the post-Marcos Congress. It looks like the measure ought to be revived, for obvious reasons.