Today’s headline yells “Prices, fares, toll go up” where the report shows of widespread price increases in food, energy and transportation costs.
This would be inconsistent with Bangko Sentral ng Pilipinas (BSP), or the Philippine central bank, claim that inflation in 2010 was within target set by the government agency. While it may be true that statistical figures may partly have reflected their stated goals, with barely a few days into 2011, statistics and media headline appear to be swiftly headed in opposite directions.
2010 may have signified the twilight of the seductive face of inflationism. And 2011 would most likely prove the BSP wrong.
From tradingeconomics.com
Yet nowhere in both articles say why prices of politically sensitive commodities have begun to surge, as reports only narrate on what has been happening.
One would only suspect that the government, media and the economic profession have deliberately opted to observe a code of silence that leaves the public groping in the dark.
No one likes to take the blame for any untoward events, much especially for the power hungry political leaders, the bureaucrats and her worshippers as this would erode their credibility and the attendant votes and political-economic privileges that go with it.
But as we have long stated--the lethal cocktail policy mix (here and abroad) of artificially suppressed interest rates, fiscal “stimulus” spending (pump priming), monetary operations (quantitative easing) from central banking authorities and the latent impact of other welfare or redistributive policies all conspired to these unfolding events abetted by the integration or globalization of finance.
One needs to see only a booming broad based domestic credit market in the automobiles, residential, consumer loans and other consumer loans, to know how the policy of punishing savers and rewarding debtors via low interest rates have been gaining ‘traction’.
From tradingeconomics.com
Portfolio flows into the local market from foreign institutions have most likely been representative of international arbitrages or a global carry trade in the search for higher yields. They are most likely impelled by the same low interest rate dynamics, and taxpayer funded money from pump priming and from bailouts.
These, alongside remittances, are reflected in the exploding record forex reserves. And rapidly expanding foreign exchange implies more Philippine peso in circulation, unless they are mopped up or absorbed by the BSP.
All these suggest of a blossoming business cycle in play that has been prompted for by the combined dynamics from government policies here and abroad.
Good days would eventually come to an end.
Consumer price inflation which is politically unpalatable especially for the Philippine setting, where the Philippines is shown as the most sensitive to food inflation in Asia (see chart from businessinsider.com), would eventually compel government to drastically tighten.
When this happens depends on the level or degree of rate of increases in consumer price inflation which will likewise be reflected in the interest rates.
But before that happens, expect the private sector to bear the brunt as the principal scapegoat for alleged economic 'greed', when the main culprit is no other than political greed.
And this will be met by a gamut of price controls which only exacerbates the situation.
Inflation’s alter ego, price controls are meant to deflect on the culpability of government, as the great Ludwig von Mises explained,
``those engaged in futile and hopeless attempts to fight the inevitable consequences of inflation—the rise in prices—are masquerading their endeavors as a fight against inflation. While fighting the symptoms, they pretend to fight the root causes of the evil. And because they do not comprehend the causal relation between the increase in money in circulation and credit expansion on the one hand and the rise in prices on the other, they practically make things worse.”
Only the truth shall set us free.
3 comments:
Excellent piece, Senor. Definitely something to think about in the weeks and months to come. Perhaps it is prudent to keep base and precious metals alike in one's portfolio as inflation hedges once price increases gain traction.
Thanks and good luck to us.
great blog. i dream of a country with citizens whose thinking are same as yours. we will get to that in time.
If it were not for the BSPs historically low interest rates for the year 2010, we might not have experienced the sharp increase in food prices. If the BSP would continue to do this, we might expect a high inflation rate for the year 2011.
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