As the great economist Thomas Sowell wrote in Applied Economics: Thinking Beyond Stage One:
Price controls are essentially lies about supply and demand…As with other lies, political or otherwise, time may be required for truth to come out and it may be too late when it does.
The Philippine Stock Exchange brags about 10 record highs, but they have been silent about this…
I frequently look at the world’s bourses and have found nothing similar to what’s been happening in the PSE.
The brazenness of the price-fixing process reveals of the quality of our institutions. For now, because markets have been forced up, they look majestic. But since these activities undermine the elementary function of markets, its repercussions, such as revulsion at a massive scale, will be unspeakable.
In two days, the PSEi has been pumped by an enormous 1.07% at the session’s end! Not even profit taking is allowed. Markets must not be permitted to fall. The vertical ascent in prices MUST continue FOREVER!
Orchestrated price actions were targeted again on firms representing the representing the Sy group.
SM’s stunning last-second upside push has tallied 2.04% in 2-days. Such price-fixing actions alleviated the firm’s 2-day deficit to just 1.02%. In short, about two-thirds of the firm’s decline had magically vanished!
Meanwhile, BDO carved new milestones from a massive 3.07% end session pumps to deliver a colossal 2-day 2.44% return!
As clearly demonstrated, the incessant price-fixing or relentless price-control maneuvers have determined a vast share of the index’s price level – the Sodom and Gomorrah ‘market’.
That’s not how markets are supposed to work.
Now to the construction sector.
Has there been a construction rebound in the 3Q?
Last week was the scheduled release of the construction material and non-CPI price inflation data by the Philippine Statistics Authority. Though they published it only today, the publications were backdated to reflect last week. Great stuff by the government really!
In September, construction material wholesale and retail prices amazingly spiked!
Year-on-year wholesale prices zoomed to 3.2% from 2.76% in August and 1.71% in July. Since wholesale prices signify the “computation of price escalation of construction materials for various government projects as indicated in the Presidential Decree (PD) 1594” then this reflects on the build, build and build programs!
On what products have the price surges appeared? The PSA:
A higher double-digit annual growth at 19.2 percent was still noted in fuels and lubricants index. Moreover, higher annual mark-ups were posted in the indices of the following commodity groups: Hardware (1.7%); Reinforcing Steel (2.1%); Structural Steel (3.9%); Doors, Jambs, and Steel Casement (3.7%); Electrical Works (0.4%); and Painting Works (1.5%).
Meanwhile, slower annual gains were seen in the indices of sand and gravel at 2.4 percent; concrete products, 0.6 percent; and plumbing fixtures and accessories/waterworks, 0.8 percent. Annual declines were registered in the indices of the following commodity groups: Cement (-3.6%); Plywood (-1.1%); G.I. Sheet (-0.3%); and PVC Pipes (-0.2%).
So prices have responded differently from the NG’s build, build and build programs. Said differently, build, build and build have affected some prices more than the others. The different types of build, build and build projects exhibited variations in demand relative to supply. Cement prices and supply could serve as an example (see below)
Now to the private sector’s activities as measured by the construction retail index.
Construction materials jumped to 1.53% in September from 1.14% in August and 1.09% in July. The PSA on the details
Higher annual increments were observed in the indices of carpentry materials at 0.6 percent; electrical materials, 1.0 percent; masonry materials, 2.9 percent; painting materials and related compounds, 1.5 percent; tinsmithry materials, 0.9 percent; and miscellaneous construction materials, 6.5 percent. On the other hand, the annual increase in the index of plumbing materials decelerated to 0.7 percent during the month.
It’s quite evident that the money supply growth breakout in August had a significant role in pushing up prices of many construction materials in both the wholesale and retail segment (upper window).
And the BSP’s undeclared QE had been instrumental in elevating M3 growth (lower window). As to whether expenditures were channeled into actual construction or were about stashing of materials in expectations of higher prices in the future remains to be seen.
Mounting price pressures remain absent on cement prices even as the government’s measure of construction materials has soared, most particularly in the retail segment.
Government’s measure of cement prices contracted significantly in 3Q: -3.55% in September, -3.95% in August and -3.22% in July.
On a quarter to quarter basis, 3Q reflected a decline of -.61% better than -1.31% in 2Q and -1.34% in the 1Q. Demand in September could have mitigated disinflationary price pressures. According to the PSA, on a month on month basis, cement prices rose by .6% September.
Though again, there may be some improvements in demand, apparently supply pressures have plagued the industry. The reason for this is that while prices have been down, domestic producers continue to scale up production: year-on-year growth on production: August +14.5% and July +8.7%!
And higher prices in September does not automatically mean build, build and build for both public and the private sector.
As in the case of general manufacturing, because of the hoarding by manufacturers, input prices rose.* Or, higher input prices in September have hardly been a manifestation of the use of resources for output purposes.
* Sorry Folks, Manufacturing Growth Tumbled in the 3Q… (The Revenge of Economics II) October 16, 2017
There are many signs to show a frail recovery in the construction sector in the 3Q: price pressures on cement, uneven price increases, and a late September bounce.
There is one thing certain; the BSP’s flooding of money into the system has only caused price instability. For the big leagues with free access to credit, this won’t be a problem. But for the mom and pops and the mid-scale enterprises, who are dependent on tight budgets, higher projects costs will put a squeeze on profits and raise strains on credit access.
Please bear in mind, there is no such thing as a free lunch…forever.
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