Stagflation Then and Now: Why Philippine Markets Are Repricing Like the 1970s (Part 4)

  

The reason that interventionism does not work is that it misallocates more resources in the economy. More importantly, it disturbs, distorts, and destroys the corrective process whereby entrepreneurs, the price system, and the bankruptcy and foreclosure procedures do their jobs in reallocating resources and prices back into a sustainable framework—Mark Thornton

Stagflation Then and Now: Why Philippine Markets Are Repricing Like the 1970s (Part 4) 

I.  Prelude: Stagflation: From Distortion to Repricing

II. The 1970s Stagflation: Adjustment Deferred, Not Avoided

III. Why It “Worked”: Structure and Illusion

IV. The Structural Break: From Production to Balance Sheets

V. The Misdiagnosis: Policy as Cause vs Policy as Reaction

VI. PSE: “Cheap” Is Not Value—It’s a Signal

VII. The Real Parallel: Mispricing Before the Break

VIII. Financial Markets: When the Adjustment Starts Showing

IX. From FX to Interest Rates: The Repricing Chain

X. The Policy Trap: Tighten Into Weakness

XI. Conclusion: The Illusion Is Ending 

Stagflation Then and Now: Why Philippine Markets Are Repricing Like the 1970s (Part 4) 

Why today’s Philippine crisis is less about shocks—and more about structure 

I.  Prelude: Stagflation: From Distortion to Repricing 

This piece builds on a series of reports examining how policy interventions have reshaped the transmission of inflation and risk in the Philippine economy. 

Earlier work showed that measures such as price controls, subsidies, and liquidity support did not eliminate underlying pressures. They delayed and redistributed them—shifting inflation across sectors, compressing real incomes, and allowing imbalances in the currency, credit system, and fiscal position to accumulate beneath the surface. 

This follows earlier reports, including:

• Stagflation Is Already Here—Emergency Policies Are Now Entrenching It
• Stagflation by Design: Policy Contradictions and the Return of the Pandemic Rescue Playbook
• The Anatomy of Philippine Stagflation: BSP Rate Hikes, Record External Deficits, and Fiscal Expansion (Part 3)

Across these, the pattern has been consistent:  stability was not the resolution of imbalances—but their deferral. 

This installment extends that framework by placing current market behavior—particularly in foreign exchange, equities and fixed income—within a historical context. 

The objective is not to argue that history repeats. 

It is to show that while the structure has changed, the mechanism has not. 

Markets reprice when constraints begin to bind. 

And increasingly, that repricing is no longer isolated. 

It is systemic. 

A note on context: the parallels to the 1970s should not be read as a direct comparison of regimes. The policy structure, institutional constraints, and transmission channels today differ significantly from the Marcos Sr. period. What persists is not the form—but the mechanism of deferring adjustment. (See linked note.)

II. The 1970s Stagflation: Adjustment Deferred, Not Avoided 

The Philippines is not new to stagflation. 

The oil shocks of 1973 and 1979 triggered inflation surges, currency pressure, and eventually a full-blown financial crisis in 1983. 

But what made the 1970s episode instructive is not the shocks themselves—it is how the system absorbed and deferred them.

Figure 1 

Following the 1969 balance of payments (BoP) crisis, the peso was sharply devalued, moving from roughly 3.9 to near 6 per dollar, before continuing a managed depreciation into the 7–8 range by the early 1980s. (Figure 1, topmost pane) 

The adjustment was immediate—but the consequences were not. 

Growth held. Real GDP expanded strongly in 1973 and again in 1976—until the early 1980s (Figure 1, middle image) 

Inflation surged during the oil shocks, with 1973 posting a sharper initial spike (~35% peak) than 1979 (~22%). Yet the true inflation (~63%) blowout did not occur during the shocks themselves—it came later, during the 1983 debt crisis. (Figure 1, lowest visual) 

This is the first principle: 

Inflation peaks at the point of financial rupture—not at the initial disturbance.

Figure 2

Equities confirm the same pattern. The Philippine stock index, the Phisix, reached an all-time high in January 1979—in the middle of stagflation. The collapse only followed when the system’s accumulated imbalances finally surfaced. (Figure 2, upper window) 

What appeared as resilience was, in reality, deferred adjustment. 

III. Why It “Worked”: Structure and Illusion 

The 1970s economy was industry-led, and the market reflected it. (Figure 2, lower graph) 

Mining, commodities, banks, and industrial conglomerates dominated the headline index—the Phisix, presently the PSEi 30. 

Figure 3

Mining firms like Atlas, Benguet, Philex, and Marinduque were not peripheral—they were central. Mining alone likely accounted for roughly a quarter to a third of market weight at points in the decade. (Figure 3, upper table) 

This mattered. 

Commodity inflation translated directly into nominal earnings growth. The stock market rose not despite stagflation—but partially because of its structure within it. 

But this alignment masked fragility.

• External borrowing recycled global liquidity
• Policy smoothing suppressed volatility
• Currency management slowed visible adjustment 

This is straight out of Hyman Minsky financial instability hypothesis: 

Stability is not the absence of risk—it is the accumulation of it under suppressed volatility. 

By the early 1980s, the system had transitioned from hedge finance → speculative → Ponzi-like dependence on refinancing. 

When confidence broke in 1983, the adjustment was nonlinear and disorderly:

• Peso collapse
• Inflation spike
• GDP contraction
• Equity drawdown exceeding 80%

The 1970s didn’t avoid crisis.

They financed its delay. 

IV. The Structural Break: From Production to Balance Sheets 

The biggest mistake today is treating stagflation as if it still transmits through the same channels. 

It doesn’t. 

The Philippine economy is now services-led. The equity market is concentrated in:

• Financials
• Services
• Utilities
• Conglomerates 

This is no longer a production-driven system—it is a balance-sheet-driven system. 

Which means stagflation now transmits through:

• Leverage (public and private) [domestic claims-to-GDP reached all-time highs in Q4 2025, coinciding with a reacceleration in M2 and M3/GDP] [Figure 3, lower graph]
• External funding dependence
• Liquidity conditions
• Credit creation and rollover risk

This dynamic is closer to a balance-sheet-driven transmission mechanism—more in line with Richard Koo’s framework—than classical supply-shock stagflation. 

Growth doesn’t collapse immediately. 

It gets financially constrained first. 

V. The Misdiagnosis: Policy as Cause vs Policy as Reaction 

The mainstream framing—that BSP tightening is "hurting growth and markets"—gets the sequence wrong. 

Tightening is not an exogenous shock. 

It is a lagged reaction to prior distortions (e.g. savings-investment gap), which are being reinforced by current emergency policies, including: 

• Price suppression (energy, transport)
• Subsidy transfers
• Fiscal expansion
• Liquidity injections 

This is where Friedrich Hayek’s theory of malinvestment becomes critical: 

Artificially suppressed price signals do not eliminate inflation—they misallocate capital, embedding inefficiencies that eventually require a more painful correction. 

When tightening finally arrives, it does not “cause” fragility. 

It reveals it. 

VI. PSE: “Cheap” Is Not Value—It’s a Signal 

The persistent discount of Philippine equities is often framed as ‘opportunity.’ 

That interpretation is increasingly untenable. 

The discount reflects: 

Figure 4

• Narrow market breadth
• Index concentration risk, including free-float-driven weight concentration in a small number of large-cap names (e.g., International Container Terminal Services Inc. and Manila Electric Company), with combined index influence at unprecedented levels [Figure 4, topmost image]
• Weak transmission from growth to earnings
• Broadening dependence on leverage rather than productivity
• Deepening price distortions that transmit into real-economy misallocation 

This is consistent with Public Choice Theory dynamics:

Policy frameworks optimize for political constraints rather than economic efficiency, producing structural drag that markets eventually price. 

“Cheapness” here is not cyclical. 

It is structural risk pricing. 

VII. The Real Parallel: Mispricing Before the Break 

The deeper parallel between the 1970s and today is not oil. 

It is this: 

Stagflation distorts asset prices before it destroys them.

The break occurs when financing conditions can no longer sustain the distortion.

• In the 1970s → external debt crisis
• Today → balance sheet compression + liquidity stress → ??? 

The danger may not be immediate collapse. 

It is prolonged mispricing. 

VIII. Financial Markets: When the Adjustment Starts Showing 

Recent market behavior suggests the adjustment is no longer latent. 

From the outbreak of the February 28, 2026 Iran war to May 1, Philippine equities have materially underperformed regional peers—the second worst performer after Indonesia, while the peso has simultaneously weakened to record levels. [Figure 4, middle diagram] 

But the sequencing matters more than the outcome: 

• Government securities outflows began in Q4 2025 and worsened in Q1 2026, dragging overall foreign portfolio flows to their deepest quarterly outflows since at least 2020 [Figure 4, lowest chart]
• PSE outflows persisted throughout 2025
• Currency weakness accelerated into 2026
• External shocks have accelerated volatility. 

They did not initiate it. 

This aligns with Dornbusch Overshooting Model dynamics:

Exchange rates adjust rapidly—not because shocks are new, but because imbalances were already embedded. 

What we are seeing is not reaction. 

It is exposure. 

Attributing the move to a “strong dollar” or external shocks is not analysis—it is attribution bias dressed up as explanation, deflecting from domestic policy choices that built the conditions for this adjustment. 

Global factors may set the trigger. 

Domestic imbalances determine the magnitude. 

IX. From FX to Interest Rates: The Repricing Chain 

The move past 61 in USDPHP is not a currency story. 

It is the first visible break in a multi-layer repricing cycle. 

The sequence is now clear:

Figure 5

1. FX moves first 

Driven by external deficits, energy imports, depletion of buffer and capital outflows. 

2. The belly reprices (3–7Y) 

Reflecting expectations of forced policy tightening (Figure 5, topmost pane] 

3. Term premiums widen (10Y and beyond) 

Consistent with duration risk being repriced beyond near-term policy expectations [Figure 5, middle image] 

This progression is not occurring in isolation. 

The widening spread between Philippine 10-year yields (BVAL) and U.S. Treasuries (TNX) has tracked the move in USDPHP, reinforcing the pattern: currency stress is being matched by higher required returns on local duration. [Figure 5, lowest chart] 

This is not simply global rates pulling yields higher. 

It is domestic risk being repriced across FX and bonds simultaneously. 

X. The Policy Trap: Tighten Into Weakness 

Unlike 2021–2022, the system now faces:

• Weaker growth
• Higher fiscal dependence
• More fragile balance sheets 

Which creates a constraint:

• Policy cannot ease without worsening inflation and FX pressure.
• Policy cannot tighten without compressing growth and liquidity. 

This is a classic stagflationary policy trap. 

And it reinforces our core thesis: 

The peso is not the cause.  

It is the pressure valve. 

These distortions are not abstract. Recent interventions—from the suspension and subsequent restoration of the Wholesale Electricity Spot Market (WESM)—effectively redistributing costs rather than removing them (which affirms our recent call), to staggered power rate adjustments and subsidy layering, to DOLE looking at a Php 600 minimum wage hike in NCR, to the CHED declaring no tuition increases to the BSP’s April CPI projection heating up 5.6% to 6.4% —illustrate the same pattern: prices are suppressed, pressures accumulate upstream, and are later released into the system with greater force.

Figure 6

This distortion is already visible at the firm level. Manila Electric Company [PSE:MER] belatedly release 2025 Annual Report shows (pre-war, pre-oil shock) revenues rising sharply—driven not by demand, but by pass-through charges, regulatory recoveries, and expanding generation-side income—even as electricity consumption contracts. [Figure 6] 

The divergence is structural: nominal revenues are being supported by fuel costs, grid charges, currency effects, and reserve market dynamics, while underlying usage weakens. 

This is the money illusion in practice—where rising prices and cost recovery sustain top-line growth, masking real demand erosion. 

It also reveals how regulatory and policy frameworks redistribute cost pressures—disproportionately benefiting incumbents and entities positioned within the regulatory structure—rather than absorb them. Within a pass-through pricing system, higher fuel, currency, and grid costs are transferred directly to consumers, sustaining revenues while weakening purchasing power. 

Over time, this produces structurally higher and less competitive energy costs—eroding real incomes and compressing savings. 

In a consumption-driven economy, that is not resilience. 

It is price-induced demand compression/demand destruction. 

It also shows that downstream utilities are not insulated from stagflation—they internalize it through pricing while externalizing its costs to consumers. 

XI. Conclusion: The Illusion Is Ending 

The lesson of the 1970s is not that stagflation causes immediate collapse. 

It is that systems can appear stable while imbalances accumulate beneath the surface. 

That dynamic has not changed. 

What has changed is structure. 

Then, distortions were anchored in production and commodities—where rising prices could partially offset inflation’s drag. 

Today, fragility sits in balance sheets, within a consumption-driven economy increasingly dependent on credit. 

This distinction matters. 

Consumption financed by leverage is inherently unstable. It holds—until financing conditions tighten. 

Which means the adjustment is not guaranteed to be gradual. 

It can appear contained—until constraints bind. 

External shocks—whether from energy, currency, or global liquidity—do not create the crisis.

They expose imbalances already embedded in the system. 

When that happens, the transition is no longer linear. 

It becomes a sudden repricing of demand, liquidity, and risk. 

Deferred adjustment does not eliminate crisis. 

It compounds and compresses it. 

The market is not misreading noise. 

It is beginning to price a system where stability depends on conditions that may no longer hold.

 

EO-110 and the Politics of Price Suppression: How the Energy Emergency Is Becoming a Nationwide Economic Intervention

 

Economics does not say that isolated government interference with the prices of only one commodity or a few commodities is unfair, bad, or unfeasible. It says that such interference produces results contrary to its purpose, that it makes conditions worse, not better, from the point of view of the government and those backing its interference—Ludwig von Mises 

In this issue:

EO-110 and the Politics of Price Suppression: How the Energy Emergency Is Becoming a Nationwide Economic Intervention

I. From Oil Shock to Emergency Response

II. The Rice Policy Template

III. Administrative Pricing Returns: The Suspension of the Power Spot Market

IV. Price Control Proof Is Already in the Streets: Shortages Appear

V. Crisis Messaging and Political Theater

VI. Crony Gains in an Energy Emergency

VII. The Financial Stability Motive

VIII. Markets Push Back

IX. Intervention Begets Intervention

X. Echoes of the Energy Crisis—Marcos Sr. vs Marcos Jr.

XI. Conclusion: Suppressing Scarcity, Shifting the Pressure 

EO-110 and the Politics of Price Suppression: How the Energy Emergency Is Becoming a Nationwide Economic Intervention 

How EO-110, emergency powers, and BSP policy are converging into a nationwide price-control regime. 

I. From Oil Shock to Emergency Response 

In a previous report, we warned that the Philippines might be entering the early stages of an oil shock.

Events over the past week suggest the policy response is now accelerating. 

Within a span of only a few days, the government has rolled out an unusually rapid sequence of interventions. 

• On March 24, the administration issued Executive Order 110, declaring a national energy emergency.
• On March 25, Congress moved to grant emergency authority to suspend fuel excise taxes.
• On March 26, the Bangko Sentral ng Pilipinas (BSP) held an off-cycle policy meeting and decided to keep interest rates unchanged. 

Each step has been framed as an effort to protect consumers from the impact of rising energy costs. 

Yet taken together, they reveal something broader: the emergence of an integrated policy approach aimed at suppressing the economic transmission of the oil shock. 

This strategy is not entirely new. 

It closely resembles the template already deployed in another politically sensitive sector—rice. 

II. The Rice Policy Template 

Over the past year, rice policy has increasingly relied on administrative intervention. 

The government imposed maximum suggested retail prices (MSRP), released reserves through the National Food Authority, introduced the highly publicized Php 20 rice program, and deployed fiscal subsidies to farmers and importers. 

In effect, the state has attempted to contain consumer prices by transferring costs elsewhere—through fiscal spending, balance-sheet adjustments, and administrative supply management. 

Public choice theorists such as James M. Buchanan and Geoffrey Brennan in The Power to Tax describe this phenomenon as fiscal illusion: the obscuring of the true cost of government through indirect financing—such as borrowing, inflation, or off-budget transfers—allowing policymakers to sustain the appearance of relief while shifting the burden forward. 

This same policy template now appears to be extending into energy markets. 

The national response to the oil shock has included:

• Suspension of transport fare increases
• fuel subsidies for operators
• intensified price monitoring and enforcement
• emergency procurement of oil supplies
• the suspension of fuel excise taxes
• intervention in electricity markets to contain price spikes 

Demands for price controls are also broadening, now encompassing LPG and imported rice. 

As with the rice program, these measures aim to soften the visible price impact of scarcity—while redistributing the underlying costs across the fiscal system and the broader economy.

Figure/Table 1

Policy intervention appears to be expanding sector by sector. Measures initially introduced to stabilize politically sensitive goods are gradually extending into energy markets and financial policy. (Table 1) 

III. Administrative Pricing Returns: The Suspension of the Power Spot Market 

The spread of price suppression is not limited to transport fuels. 

On March 25, the Energy Regulatory Commission ordered the temporary suspension of the Wholesale Electricity Spot Market (WESM) across the Luzon, Visayas, and Mindanao grids after simulations suggested electricity prices could surge to around ₱9 per kilowatt-hour amid the Middle East energy shock. 

The WESM is the Philippines’ real-time electricity trading platform, where elite owned and controlled power producers and distributors buy and sell electricity based on supply and demand conditions. Prices in this ‘caged’ market normally fluctuate to reflect fuel costs, generation capacity, and grid constraints. 

By suspending the market, regulators effectively replaced price discovery with administrative allocation. 

The objective is straightforward: prevent a sudden spike in electricity prices from feeding into consumer inflation. 

But the economic implications are significant. 

Spot markets exist precisely to coordinate supply and demand under changing conditions. When prices rise, they signal scarcity and encourage additional generation or conservation. 

Administrative suspension interrupts that signal. 

Instead of electricity being allocated through price adjustments, dispatch decisions increasingly become centralized—determined by regulatory directives rather than market incentives. 

The result may temporarily contain visible price increases, but it also risks creating deeper distortions in the power sector. 

Power producers must now operate under uncertain compensation conditions, while distributors and large consumers lose the market signals that normally guide electricity procurement. 

In effect, one of the country’s most important energy markets has been replaced—at least temporarily—by administrative pricing. 

This development reinforces a broader pattern emerging across sectors: the gradual substitution of price mechanisms with regulatory control. 

But suppressing prices does not eliminate the underlying imbalance between supply and demand. 

As Friedrich Hayek famously argued in The Use of Knowledge in Society, prices function as signals coordinating dispersed knowledge across the economy. Suspending markets may suppress volatility, but it also suppresses the information that allows the system to adjust. 

If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them 

Or suppressing those signals inevitably disrupts the coordination process. It also shifts the adjustment to other parts of the economy.

Yet authorities have not only suspended WESM; they are reportedly considering permanently repealing the only partially deregulated segment of the energy sector, as well as the removal of VAT. Both measures may provide temporary relief, but such band-aid solutions carry the risk of future unintended consequences. 

Moreover, while reducing taxes may be desirable, without corresponding spending constraints this approach would likely worsen fiscal deficits and heighten the fragility of public finances. 

In effect, short-term interventions may shield consumers today, but they also deepen structural vulnerabilities that could amplify costs tomorrow. 

IV. Price Control Proof Is Already in the Streets: Shortages Appear 

Basic economic theory predicts that price ceilings eventually produce shortages. 

Early signs of this dynamic are already emerging. 

Reports indicate that more than 400 gasoline stations have temporarily closed, citing supply difficulties even as authorities insist that fuel inventories remain sufficient. 

Public transport is showing similar strains. 

Jeepneys in Quezon City and bus operators in Metro Manila (about 20%) and Baguio City (up to 50%) have significantly reduced operations, with stranded commuters and growing protests highlighting the mismatch between controlled fares and rising fuel costs. 

As an aside, this is just the first few days! 

Despite subsidy rollouts, the economics of operating public transport under capped fares have become increasingly difficult.

Figure 2

The result is a classic outcome described in the literature on price ceiling: supply contraction rather than price adjustment. (Figure 2, upper window) 

Retail markets are beginning to reflect the same pressures. 

Supermarkets and some food manufacturers have signaled price increases beginning April 1, reversing a March commitment to uphold a temporary two-month price freeze. The Department of Trade and Industry (DTI), however, insists that any price adjustments should not take effect until April 16. 

In the aviation sector, the pattern has been equally revealing. 

After the president warned that aircraft might be grounded if fuel shortages worsened, Philippine Airlines assured the public that jet fuel supplies were sufficient for the ‘foreseeable future.” 

Shortly afterward, the airline quietly cut several domestic and international flight routes  suggesting fuel conservation moves. 

These episodes illustrate a recurring feature of interventionist policy regimes: the widening gap between official reassurance and market behavior. 

V. Crisis Messaging and Political Theater 

Public messaging surrounding the energy situation has evolved rapidly. 

Initially, officials emphasized that there was ‘no energy crisis.’ 

More recently, the government has declared an energy emergency while simultaneously insisting that there is still no reason to panic. 

The pattern echoes a famous observation often attributed to Otto von Bismarck:

never believe anything until it has been officially denied. 

Policy actions suggest a far more serious assessment than the rhetoric implies. 

Authorities have begun cracking down on alleged fuel hoarding, floated the possibility of repealing elements of the country’s oil deregulation law, and raised the prospect of removing the value-added tax on petroleum products (as noted above). 

At the extreme end of the policy spectrum, discussions have even surfaced about the possibility of an energy lockdown should supply conditions deteriorate further. 

As political economist Albert O. Hirschman observed in The Rhetoric of Reaction, crisis politics often produces a distinctive rhetorical pattern: policies framed as temporary necessities gradually become permanent features of governance. 

Taken together, these measures suggest a steady expansion of administrative control not only over the energy sector, but more broadly across society. 

VI. Crony Gains in an Energy Emergency 

While the policy framework emphasizes consumer protection, the distribution of benefits within the energy sector tells a more complex story. 

Several large corporate groups appear poised to gain from the shifting landscape. 

Petron Corporation, a subsidiary of San Miguel Corporation (SMC), has reportedly sourced discounted Russian crude, including last week’s shipments of roughly 700,000 barrels. 

At the same time, Tycoon and SMC chair, Ramon S. Ang has revived proposals for the government to acquire Petron—a move that could effectively transfer part of the firm’s humungous debt burden onto the public balance sheet. 

Such a shift reflects what Gordon Tullock described as rent-seeking dynamics: firms capture gains during favorable market conditions, yet seek to socialize losses when the cycle turns. Private upside, public downside. 

Other developments point in a similar direction. Amid public pressure against coal, policymakers have signaled support for its “temporary” expansion under the banner of energy security—even as official rhetoric continues to favor renewables. 

Despite its political unpopularity, Department of Energy data indicate that coal accounted for an all-time high 62% of gross power generation in 2024. (Figure 2, lower image) 

A subsidiary of Manila Electric Company, Meralco PowerGen Corp. (MGEN), has reportedly expressed interest in assets linked to Semirara Mining and Power Corporation (PSE: SCC). 

Notably, some of these assets had already been subjected to regulatory or contractual rebidding processes prior to the current crisis.  

In that context, the present moment may be less a sudden policy shift than an acceleration of an existing trajectory—one in which administrative actions reshape ownership and market structure. The result is a coal sector that may not only revive, but consolidate under a few hands through policy-mediated channels.

Meanwhile, announcements surrounding the Camago-3 field within the Malampaya Phase 4 gas field development have been presented as evidence of incoming domestic supply. Yet such projects typically take years to materially affect output, and gas contracts remain indexed to global prices.  Absent subsidies, price relief is unlikely in the near term. For now, these announcements function more as reassurance than resolution. 

While the timing of benefits to consumers remains uncertain, the consortium—particularly Tycoon Enrique Razon led Prime Energy—is clearly positioned to capture upstream gains 

As Mancur Olson observed in The Rise and Decline of Nations, crises tend to strengthen “distributional coalitions”—organized interests that secure concentrated benefits while dispersing costs across the broader public. 

The pattern is hardly new. Frédéric Bastiat, in The Law, warned that when the state becomes an instrument for particular interests to extract from the public, law itself is transformed—from a protector of rights into a vehicle for legalized transfer. 

The emerging picture suggests not merely an energy response, but a reconfiguration of advantage. The beneficiaries appear to be those corporate groups already positioned to consolidate and potentially cartelize segments of the country’s energy supply chain. 

In effect, the crisis is not only redistributing costs—it also seems to be concentrating access to resources, decision-making power, and control in fewer hands. 

VII. The Financial Stability Motive 

The government’s intervention in energy and monetary policy may extend beyond protecting consumers. 

Energy shocks transmit rapidly through the financial system: higher fuel prices feed into consumer inflation, which in turn pressures the central bank to tighten policy. The BSP recently revised its 2026 inflation forecast to 5.1%—well above its 2–4% target, underscoring the magnitude of underlying price pressures. Rising interest rates reduce asset valuations and weaken collateral across the banking system.

Figure 3 

As an aside, the BSP’s 5.1% 2026 inflation forecast reveals much about their expectations. With January and February CPI at 2% and 2.4%, this implies that the average CPI for the remaining ten months would need to reach roughly 5.68%. Such a trajectory would push monthly CPI above 6%, potentially testing or exceeding the 8.7% high recorded in February 2023! If realized, this would reinforce what appears to be our long projected third wave of the CPI cycle since 2015. (Figure 3, upper graph) 

Banks in the Philippines are heavily exposed to property lending and government securities. A rapid rise in rates could trigger cascading balance-sheet pressures—falling bond prices, declining property valuations, and rising non-performing loans. From this perspective, suppressing the visible impact of the oil shock may help delay financial tightening. 

The BSP’s off-cycle decision to hold policy rates steady has been widely interpreted as part of this stabilization effort. Officials from the Bureau of the Treasury have acknowledged or admitted that maintaining stable borrowing conditions in the bond market was an important consideration. 

In effect, the policy response aims to keep inflation, interest rates, and asset prices contained simultaneously. 

These constraints are consistent with the structural limitations faced by semi-peripheral economies. The Philippines’ persistent savings–investment gap makes it reliant on external capital, which limits independent monetary policy and exposes the financial system to global market pressures. As Giovanni Arrighi observed, countries in the semi-periphery are structurally dependent on foreign financing and currency, leaving central banks with limited room to maneuver. 

The BSP is therefore not simply choosing between “good” and “bad” options; it is deciding which part of the balance sheet to protect first. 

VIII. Markets Push Back 

Financial markets rarely remain passive. The US dollar–Philippine peso exchange rate has surged to a record 60.55, marking a historic low for the peso. 

At the same time, government bond yields—particularly in the one- to seven-year segment—have moved decisively higher, underscoring growing unease about fiscal stability and inflation risks. (Figure 3, lower chart) 

Although Philippine equity markets have declined, trading patterns suggest that downside volatility is being deliberately managed, or at least cushioned, within the heavily weighted components of the PSEi-30 index. 

The market’s verdict appears clear: the Bangko Sentral ng Pilipinas (BSP) is likely to absorb external pressures through currency adjustment rather than aggressive rate hikes and use of reserves, constrained by fiscal realities. 

Inflation is nearing 5%, with second-round effects increasingly visible across transport, food, fertilizer, and electricity costs. These pressures are no longer isolated—they are feeding into broader economic feedback loops. 

Meanwhile, signs of strain are becoming more evident across the broader economy. 

The retail sector continues to undergo restructuring. Marks & Spencer has withdrawn its operations despite earlier signals of recalibration, while Robinsons Retail has announced the closure of its No Brand outlets. The conglomerate is also reportedly considering the possibility of delisting from the Philippine Stock Exchange. 

Taken together, these developments may reflect more than isolated corporate decisions. They point to a tightening environment for both consumers and listed firms, as financing conditions gradually shift and economic pressures intensify.

IX. Intervention Begets Intervention

Figure/Table 4

Intervention often follows a self-reinforcing cycle. Initial controls distort market signals, producing shortages that then justify further administrative action. (Figure 4) 

The trajectory of recent policy decisions follows a pattern long recognized in economic theory.

Austrian economist Ludwig von Mises argued that partial government intervention in markets tends to generate unintended distortions that eventually require additional intervention. 

Wrote the great von Mises 

Price control is contrary to purpose if it is limited to some commodities only. It cannot work satisfactorily within a market economy. The endeavors to make it work must enlarge the sphere of the commodities subject to price control until the prices of all commodities and services are regulated by authoritarian decree and the market ceases to work.

Either production can be directed by the prices fixed on the market by the buying or the abstention from buying on the part of the public; or it can be directed by the government’s offices. There is no third solution available. Government control of a part of prices only results in a state of affairs which—without any exception—everybody considers as absurd and contrary to purpose. Its inevitable result is chaos and social unrest. 

The preeminent Dean of Austrian School of Economics, Murray Rothbard’s concept of triangular intervention helps explain how regulating one set of exchanges can distort others, setting off a chain of interventions across sectors. 

A triangular intervention occurs when an intervener either compels a pair of people to make an exchange or prohibits them from making an exchange. The coercion may be imposed on the terms of the exchange or on the nature of one or both of the products being exchanged or on the people doing the exchanging… 

Directly, the utility of at least one set of exchangers will be injured by the control. Indirectly, as we find by further analysis, hidden, but just as certain, effects injure a substantial number of people who thought they would gain in utility from the imposed controls. The announced aim of a maximum price control is to benefit the consumer by giving him his supply at a lower price; yet the objective effect is to prevent many consumers from having the good at all. The announced aim of a minimum price control is to insure higher prices to the sellers; yet the effect will be to prevent many sellers from selling any of their surplus. Furthermore, the price controls inevitably distort the production and allocation of resources and factors in the economy, thereby injuring again the bulk of consumers. And we must not overlook the army of bureaucrats who must be financed by the binary intervention of taxation and who must administer and enforce the myriad of regulations. This army, in itself, withdraws a mass of workers from productive labor and saddles them onto the remaining producers—thereby benefiting the bureaucrats, but injuring the rest of the people. 

More broadly, the expansion of state authority during crises was famously analyzed by historian Robert Higgs, who observed that emergency conditions often lead to permanent increases in government control over economic activity. 

The emerging policy response to the oil shock appears to be following this familiar path.

• Price controls lead to shortages.
• Shortages trigger enforcement actions.
• Enforcement expands administrative authority.
• Administrative authority creates new political and economic beneficiaries. 

The cycle then repeats.

X. Echoes of the Energy Crisis—Marcos Sr. vs Marcos Jr. 

The Philippines has confronted energy shocks before. But the institutional setting of the crisis today differs profoundly from the one that shaped the policy response half a century ago. 

During the global oil shocks of the 1970s—particularly the 1973 Oil Crisis and 1979 Oil Crisis—the Philippines was already operating under authoritarian rule. Ferdinand Marcos Sr. had declared Martial Law in the Philippines in September 1972, consolidating political power and weakening institutional checks on executive authority. 

Energy policy therefore unfolded within a centralized political system capable of imposing controls, directing credit, and reorganizing industries with limited resistance. 

The current oil shock, by contrast, is unfolding under the presidency of Ferdinand Marcos Jr. within a formally democratic political structure. Instead of authoritarian command, policy is emerging through a rapid layering of interventions—executive orders, emergency powers, regulatory suspensions, subsidies, and monetary accommodation. 

This difference matters.

Figure/Table 5 

Energy shocks have struck the Philippines under both Marcos administrations. The key difference lies in the institutional pathway of intervention: centralized command under martial law in the 1970s versus layered regulatory and fiscal intervention within a democratic framework today. (Figure/Table 5) 

In the 1970s, authoritarian institutions allowed the state to impose controls directly and sustain them over time. Today, similar economic objectives must be pursued through a more fragmented political process involving subsidies, administrative pricing, and financial policy coordination. 

Yet the economic trajectory may still converge. 

The interventionist policies of the 1970s ultimately culminated in the Philippine external debt crisis of 1983, when mounting fiscal deficits, rising external borrowing, and weakening investor confidence forced a restructuring of sovereign obligations. 

Today’s macroeconomic backdrop exhibits its own form of imbalance. 

Fiscal deficits remain historically elevated. Public debt has risen sharply relative to national output. Liquidity conditions—reflected in rapid monetary expansion and sustained deficit financing—have reached levels rarely seen in the country’s economic history. 

Measured as shares of GDP, many of these indicators appear manageable. But GDP itself increasingly reflects government spending and credit expansion rather than productivity growth. 

In that sense, the underlying dynamics bear an uncomfortable resemblance to the earlier era.

The key difference is speed. 

During the 1970s, the accumulation of distortions took years to unfold. Today, early symptoms are appearing within days of the policy response. 

Transport shortages are already emerging only days after the declaration of the energy emergency. If such distortions persist, the policy logic may lead to further escalation: larger subsidies, deeper price controls, emergency procurement programs, and expanding administrative authority. 

Economic crises have historically been fertile ground for political centralization. Severe shocks—whether economic, geopolitical, or social—often generate the conditions under which governments justify extraordinary powers. 

The Philippines’ current constitutional framework imposes safeguards against such outcomes. Yet history also shows that institutional constraints can erode rapidly under sustained crisis conditions. 

Whether today’s oil shock remains an economic problem—or evolves into a broader political one—will depend less on official assurances than on the incentives shaping policy decisions in the months ahead. 

XI. Conclusion: Suppressing Scarcity, Shifting the Pressure 

The oil shock may only be the beginning. EO-110 could come to be seen not as a solution, but as the opening phase of a broader cycle of intervention. 

From rice to fuel, from transportation to energy markets, policy is increasingly aimed at suppressing how rising costs flow through the economy—seeking to contain inflation, stabilize financial conditions, and preserve asset values. 

Yet economic reality rarely accommodates such efforts for long. Suppressing prices does not remove scarcity; it merely redirects it. The adjustment reemerges elsewhere—through fiscal strain, currency pressure, supply disruptions, or financial instability. 

The Philippines may therefore be entering not just an energy emergency, but a wider economic experiment: an attempt to delay market adjustment through expanding intervention. History suggests these efforts seldom end as intended. 

The real question is no longer whether adjustment will occur—but where the pressure will surface next.