The Philippine Government’s New Method of Controlling Inflation: Censorship of Inflation Reports! Another Sy Led Historic PUMP!
In the National Government’s (NG) attempt to manage the fiscal policy of ‘spend, spend, spend’, I wrote last May: [See Why Interest Rates Will Rise: 1Q Fiscal Deficit Blowout Financed by BSP’s Debt Monetization (QE) and Spiking Public Debt! May 6, 2018]
5) The last option would be for the NG and BSP to manipulate markets and statistics in the hope that the markets will conform and comply with their political targets.
A principal repercussion of the fiscal policy of spend, spend and spend has been street inflation. The NG’s statistical CPI has also manifested the government-made fiat-money inflation or the effect of the NG’s aggressive spending financed by the BSP and banks on the prices.
As such, desperately looking for a scapegoat, Department of Finance (DoF) officials have trained their guns on establishment economists.
Finance Secretary Carlos Dominguez III said the government would continue to keep tabs on economists’ inflation and economic growth forecasts next year to make them accountable for their projections which were used as basis for consumer and business decisions.
Dominguez told reporters Monday night that the Department of Finance (DOF) only wanted to compare projections with actual numbers.
“All I want is the score. [For example, as in basketball] we want to score how many of the three-point shots of Curry go in,” Dominguez said, referring to basketball star Stephen Curry.
While these forecasts have margins of error, Dominguez said analysts and economists should be made accountable when they put their projections out in public.
Early on, DoF officials went into a verbal scrimmage with mainstream analysts.
The Philippines Department of Finance blamed analysts for "faulty" forecasts that drove up inflation expectations. Now some analysts are fighting back.
The fracas started on Sunday when the finance department issued a statement saying projections by analysts and economists from 13 institutions were “off the mark” by as much as 0.4 percentage points from the official inflation rates for January to November. It suggested the estimates were "weak".
“These forecasts have also driven inflation expectations that, as we know from global experience, have a tendency tobecome self-fulfilling prophecies,” Finance Undersecretary Karl Kendrick Chua said.
The response was swift. In a country where the central bank uses social media to communicate policy, the financial community isn’t shy about challenging the official view on the same platforms.
Analysts were quick to point out that the government itself has had to revise its own forecasts for inflation, economic growth, and trade.
The next day, mainstream experts gathered forces to scoff at the DOF’s accusations.
LOCAL economists have dismissed the results of the study released by the Department of Finance (DOF) that the “off-the-mark” forecasts of over a dozen analysts actually served to fuel inflation in the past few months, saying it was not right for the government to point fingers at this time.
Yogi Berra once said “It’s tough to make predictions, especially about the future.”
I am reminded of the government of Argentina which has been notorious in the manipulating statistical CPI.
Back in 2011, the Argentine government even “fined two private consultancies $120,000 over the publication of inflation estimates that more than double the official rate”, according to Reuters.
Has the Argentine government been successful in controlling CPI by punishing forecasters?
Argentina’s CPI climbed in 2011 and continued ascent up to the present. Argentina’s information controls or censorship hasn’t thwarted the laws of economics.
Of course, the Philippines isn’t Argentina. But what would matter is of the policies undertaken by the government. Since the Philippines has embraced a socialist path reminiscent of the latter, similarities in outcomes have surfaced.
Or, the Philippines may end up like the latter unless there would be substantial changes in the direction of the present socio-political-economy path.
So the subjugation of CPI forecast would signify an exercise in futility
And here’s the thing.
The establishment's bickering over the CPI exposes their perspective on inflation: a statistical contraption!
Perhaps such information bears significance for the finance world and the businesses of the elite.
But do street vendors, the sari-sari and carinderia store owners or small and medium business scale enterprises use the GDP and CPI in their business calculations?
Up to what extent have the GDP and CPI been used by entrepreneurs for making decisions?
The DOF gives too much credit to these analysts for their “self-fulfilling prophecies”.
By such allusion, have these analysts attained rock star status?
According to the BSP’s deposit liabilities, Php 12.152 trillion in total deposits are from 47.54 million depositors who maintain some 59.6 million deposit accounts as of June 2018
With half of the population not having deposit accounts from the banking system, the thrift, and rural and cooperative banks, how (the heck) can these ‘experts’ hold sway on the public’s inflation expectations?
Like Argentina, the DOF is looking for a fall guy for their policy failures.
Yet, of course, the other policy perspective here is control of information. The NG wants to filter out politically unacceptable forecasts. It believes force is necessary to control economic outcomes which play by the book of totalitarianism.
Here is an interesting side note.
Deposits with over Php 2m have grown fastest even when they represent the smallest share of the total accounts. In contrast, growth in the 5k and below accounts, which consists of the biggest share of total accounts, continues to ebb. Such highly skewed distribution of bank deposit liabilities reveals of the dispersion of wealth in favor of the “have’s”.
Finally, it’s hideously naïve for anyone to expect precise outcomes through quantified forecasting in the same manner as predicting natural sciences.
Economics isn’t natural science.
Economics can predict the effects to be expected from resorting to definite measures of economic policies. It can answer the question whether a definite policy is able to attain the ends aimed at and, if the answer is in the negative, what its real effects will be. But, of course, this prediction can be only "qualitative." It cannot be "quantitative" as there are no constant relations between the factors and effects concerned. The practical value of economics is to be seen in this neatly circumscribed power of predicting the outcome of definite measures.
And of course, economic theory shouldn’t be confused with econometrics. As Economic blogger and Professor Donald J. Boudreaux wrote,
The ultimate test of any theory is not how impressive it looks or even how well its predictions are borne out by the quantitative data. Rather, the ultimate test of any theory is how well it improves our understanding of reality.
And one last thing.
The PhiSYx attained a second record today!
That milestone embodies another historic PUMP!
What can’t be attained in the regular session will have to be accomplished by an orchestrated move at the close!
53.3% of today’s gains from an eight-company pump. The Sy group having the largest market cap were the main beneficiaries aside from the stunning JGS push (+5.84% to deliver 87.5% of the 6.67% gains of the day! Awesome!). The 8-firm pump had a total market share of 55.54% as of the day’s close.
Desperate times calls for desperate measures!
And yes, the CPI forecasting censorship is tied with the brazen stock market manipulation: these are designed to control, by force, the laws of economics!
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