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.

 

 

 

Philippine Treasury Markets vs. the Government’s February 2.1% Inflation Narrative: Who’s Right?

 

Inflation is a tax. Money for the government. A tax that people don’t see as a tax. That’s the best kind, for politicians—Lionel Shriver 

In this issue

Philippine Treasury Markets vs. the Government’s February 2.1% Inflation Narrative: Who’s Right?

I. February Inflation: A "Positive Surprise" or Statistical Mirage?

II. Demand Paradox: Near Full-Employment and Record Credit Highs in the face of Falling CPI and GDP?

III. The Financial Black Hole: Where Is Bank Credit Expansion Flowing?

IV. The USDPHP Cap: A Hidden CPI Subsidy

V. Markets versus Government Statistics: Philippine Treasury Markets Diverge from the CPI Data 

Philippine Treasury Markets vs. the Government’s February 2.1% Inflation Narrative: Who’s Right? 

With price controls driving February CPI down to 2.1%, the BSP’s easing narrative gains traction—yet treasury markets remain deeply skeptical

I. February Inflation: A "Positive Surprise" or Statistical Mirage?

ABS-CBN News, March 5: Inflation eased to 2.1 percent in February because of slower price increases in food and non-alcoholic beverages, among others, the Philippine Statistics Authority said Wednesday. In a press briefing, the PSA said food inflation slowed to 2.6 percent in February from 3.8 percent in January. The state statistics bureau noted that rice inflation further slowed to -4.9 percent from -2.3 percent in January…But the PSA noted that pork prices jumped by 12.1 percent in February, while the price of chicken meat leapt by 10.8 percent.  The cost of passenger transport by sea also soared to 56.2 percent in February.  Del Prado said the African swine fever problem continue to hurt pork prices in the Philippines. She said, however, that the Department of Agriculture’s plan to impose a maximum suggested retail price on pork may help ease price hikes. 

The Philippine government recently announced that inflation unexpectedly dropped to 2.1% in February 2025. One official media outlet hailed it a "positive surprise" in its headline. 

But is this optimism warranted? 

While the Philippine Stock Exchange (PSE)—via the "national team"—welcomed this news, interpreting it as a sign that the Bangko Sentral ng Pilipinas (BSP) could continue its loose monetary policy—essentially providing a pretext for rate cuts—the more critical Philippine treasury markets, which serve as indicators of interest rate trends, appeared to hold a starkly different view. 

As an aside, the BSP’s reserve requirement ratio (RRR) cut takes effect this March 28th, adding fuel to the easing narrative. 

The odd thing is that a critical detail has been conspicuously absent from most media coverage: on February 3, 2025, authorities implemented the "Food Emergency Security" (FES) measure. 

This policy, centered on price controls—specifically Maximum Suggested Retail Prices (MSRP)—was supported by the release of government reserves. 

Consequently, February’s Consumer Price Index (CPI) reflects political intervention rather than organic market dynamics.

Figure 1

Even more telling is an overlooked trend: the year-on-year (YoY) change in the national average weighted price of rice had been declining since its peak in April 2024—well before the FES was enacted. (Figure 1, topmost graph) 

In a nutshell, the FES merely reinforced the ongoing downtrend in rice prices, serving more as an election-year tactic to demonstrate government action "we are doing something about rice prices," rather than an actual cause of the decline. 

Nevertheless, it won’t be long before officials pat themselves on the back and proclaim the policy a triumph. Incredible. 

But what about its future implications? 

Unlike rice, where government reserves were available to support price controls, the impending implementation of MSRP for pork products next week lacks similar supply-side support. This suggests that any price stabilization achieved will be short-lived. (Figure 1, middle chart) 

As noted in February,  

However, as history shows, the insidious effects of distortive policies surface over time. Intervention begets more intervention, as authorities scramble to manage the unintended consequences of their previous actions. Consequently, food CPI remains under pressure. (Prudent Investor, 2025)  

Nevertheless, manipulating statistics serves a political function—justifying policies through "benchmark-ism."  

Beyond food prices, which dragged down the headline CPI, core CPI also eased from 2.6% in January to 2.4% in February. 

Despite this pullback, the underlying inflation cycle appears intact. (Figure 1, lowest image) 

Government narratives consistently frame inflation as a ‘supply-side’ issue or blame it on "greedflation," yet much of their approach remains focused on demand-side management through BSP’s inflation-targeting policies. 

II. Demand Paradox: Near Full-Employment and Record Credit Highs in the face of Falling CPI and GDP? 

Authorities claim that employment rates have recently declined but remain near all-time highs. 

But how true is this?

Figure 2

The employment rate slipped from an all-time high of 96.9% in December 2024 to 95.7% in January 2025—a level previously hit in December 2023 and June 2024. (Figure 2, topmost image) 

Remarkably, despite near-full employment, the CPI continues to slide. 

Officials might argue this reflects productivity gains.  But that claim is misleading.

Consumer credit growth—driven by credit cards and supported by salary loans—has been on a record-breaking tear, rising 24.4% YoY in January 2025, marking its 28th consecutive month above 20%. (Figure 2, middle window) 

Yet, unlike the 2021-2022 period, headline CPI has weakened. 

Could this signal diminishing returns—mainly from refinancing? 

Beyond CPI, total Universal-Commercial (UC) bank loans have surged since Q1 2021—unfazed by official interest rate levels. (Figure 2, lowest diagram)

Figure 3

The slowing growth in salary loans seems to mirror the CPI’s decline. (Figure 3, upper pane) 

And it’s not just inflation. 

Despite an ongoing surge in Universal-Commercial (UC) bank loans since Q1 2021—regardless of official interest rate levels—weak consumption continues to weigh on GDP growth. The second half of 2024 saw GDP growth slow to just 5.2%. (Figure 3, lower chart) 

This boom coincides with record real estate vacancies, near unprecedented hunger rates, and almost milestone highs in self-reported poverty. 

So, where has demand gone? 

In January 2025, UC bank loans (both production and consumer) increased by 13.27% year-on-year. 

Are the government’s employment figures an accurate reflection of labor market conditions? Or, like CPI data, are they another exercise in "benchmark-ism" designed to persuade voters and depositors that the political economy remains stable? 

III. The Financial Black Hole: Where Is Bank Credit Expansion Flowing?

Figure 4 

Ironically, bank financing of the government, as reflected in Net Claims on the Central Government (NCoCG), continues to soar—up 7.4% year-on-year to PHP 5.41 trillion in January 2025, though slightly down from December 2024’s historic PHP 5.54 trillion. 

Meanwhile, since bottoming at 1.5% in April 2023, BSP currency issuance has trended upward, accelerating from May 2024 to January 2025, when it hit 11% YoY. (Figure 4, topmost graph) 

Despite this massive liquidity injection—via bank lending and government borrowing—deflationary forces persist in the CPI. 

Where is this money flowing? What "financial black hole" is absorbing the injected liquidity? 

IV. The USDPHP Cap: A Hidden CPI Subsidy 

The recent weakness of the US dollar—primarily due to a strong euro rally following U.S. President Trump’s pressure on Europe to increase NATO contributions—has driven up the region’s stock markets, particularly defense sector stocks. This, in turn, has triggered a global bond selloff.

The euro’s strength has also bolstered ASEAN currencies, including the Philippine peso. 

As predicted, the BSP’s cap on the USD-PHP exchange rate— a de facto subsidy—has fueled an increase in imports. In January, the nation’s trade deficit widened by 17% to USD 5.1 billion due to a 10.8% jump in imports. (Figure 4, middle window) 

Further, to defend this cap, the BSP sold significant foreign exchange (FX) in January, only to replenish its Gross International Reserves (GIR) in February via a USD 3.3 billion bond issuance. The BSP attributes the GIR increase to "(1) national government’s (NG) net foreign currency deposits with the Bangko Sentral ng Pilipinas (BSP), which include proceeds from its issuance of ROP Global Bonds, (2) upward valuation adjustments in the BSP’s gold holdings due to the increase in the price of gold in the international market, and (3) net income from the BSP’s investments abroad." (Figure 5, lowest visual) 

This disclosure confirms the valuable role of gold in the BSP’s reserves. 

In short, the USD-PHP cap has not only subsidized imports but has also artificially suppressed the official CPI figures. 

From 2015 to 2022, the ebbs and flows in the USD-PHP exchange rate were strongly correlated with CPI trends.  

Figure 5

However, since 2022, when the exchange rate cap was strictly enforced, this relationship has broken down, increasing pressure on the credit-financed trade deficit and necessitating further borrowing to sustain both the cap and the Gross International Reserves (GIR). (Figure 5, topmost image) 

V. Markets versus Government Statistics: Philippine Treasury Markets Diverge from the CPI Data 

First, while global bond yields have risen amid the European selloff, this has not been the case for most ASEAN markets—except for the Philippines. This suggests that domestic factors have been the primary driver of movements in the ASEAN treasury markets, including the Philippines. (Figure 5, middle and lowest graphs)

Figure 6

Second, it is important to note that institutional traders dominate the Philippine treasury markets. This dynamic creates a distinction between the public statements of their respective "experts" and the actual trading behavior of market participants—"demonstrated preferences." 

The apparent divergence between the CPI and Philippine 10-year bond yields—despite their previous seven-year correlation—reveals disruptions caused by other influencing factors. (Figure 6, upper chart) 

Or, while analysts often serve as institutional cheerleaders for the traditional market response to an easing cycle, traders seem to be reacting differently.

Finally, further cementing this case for decoupling, the Philippine yield curve steepened (bearish steeper) during the week of the CPI announcement—suggesting that treasury markets are pricing in future inflation risks or tighter policy, potentially discounting the recent CPI decline as temporary. (Figure 6, lowest graph) 

All in all, while the government and the BSP claim to have successfully contained inflation, treasury markets remain highly skeptical—whether about the integrity of the data, the sustainability of current policies, or both. 

Our bet is on the latter.

___

References  

Prudent Investor, January 2025 2.9% CPI: Food Security Emergency andthe Vicious Cycle of Interventionism February 10, 2025

 

January 2025 2.9% CPI: Food Security Emergency and the Vicious Cycle of Interventionism

  

The advocates of public control cannot do without inflation. They need it in order to finance their policy of reckless spending and of lavishly subsidizing and bribing the voters—Ludwig von Mises 

In this issue

January 2025 2.9% CPI: Food Security Emergency and the Vicious Cycle of Interventionism

I. Introduction

II. January 2025 2.9% CPI: Key Highlights

III. The Government’s Convenient Attribution Bias: The Typhoon Fallacy

IV. Baseline Changes: Engineering GDP Growth

V. The Falling Rice Prices: Why the Food Emergency Security?

VI. The Rice Ceiling Trap: A Self-Inflicted Supply Crisis and the Vicious Cycle of Interventionism

VII. Treasury Markets Are Already Telegraphing Inflation Risk

VIII. The Contradiction: Why a Food Security Emergency Amid Falling Prices?

IX. 2024 Fiscal Snapshot: Rising Debt, the Trade-Off for 5.6% GDP

X. Mounting Risks of Philippine Peso Devaluation and Inflation Risks 

January 2025 2.9% CPI: Food Security Emergency and the Vicious Cycle of Interventionism

I. Introduction 

·         January’s CPI provided a temporary breather against the looming risk of an inflation rebound.

·         Despite falling rice prices, authorities pushed forward with a Food Security Emergency—one in a series of interventions aimed at suppressing CPI in the short term.

·         Meanwhile, rising domestic and external debt, coupled with declining foreign reserves (GIR), amplify risks of peso devaluation and feeding the inflation cycle.

II. January 2025 2.9% CPI: Key Highlights 

Businessworld, February 6, 2025: HEADLINE INFLATION remained steady in January as lower utility costs offset a spike in food prices, preliminary data from the Philippine Statistics Authority (PSA) showed. It also settled within the 2.5%-3.3% forecast from the Bangko Sentral ng Pilipinas (BSP). The January print was also slightly higher than the 2.8% median estimate in a BusinessWorld poll of 16 analysts... Core inflation, which discounts volatile prices of food and fuel, settled at 2.6% during the month — slower than 2.8% in December and 3.8% a year ago…On the other hand, rice inflation contracted to 2.3% in January from the 0.8% clip in December and 22.6% jump a year prior. (bold added) 

Nota Bene: As of January, the BSP has yet to release data on bank lending, liquidity conditions, and its central bank survey. This leaves us with the January CPI—interpreted through the lens of what the government intends to highlight: supply-driven inflation!

Figure 1 

Momentum: January’s data suggests stalling momentum in the year-over-year (YoY) change for both headline and core CPI. 

However, a trend analysis of the month-over-month (MoM) change reveals that while headline CPI remains above the upper boundary of its trend line, core CPI remains rangebound, albeit slightly lower than recent highs. (Figure 1, topmost image)

Bottoming Phase? These MoM rates suggest a bottoming phase. It remains uncertain whether this will remain rangebound or break to the upside, requiring further confirmation.

Uptrend of the Third Wave of the Inflation Cycle Intact. Nonetheless, the broader uptrend in the 10-year headline and core CPI remains intact. In fact, MoM trends reinforce the case for a bottoming—a potential launching pad.

It's important to remember that this CPI backdrop occurs amidst the BSP's pursuit of easy money policies since the second half of 2024. This is coupled with a series of all-time highs in bank credit expansion and a near-record unemployment rate in December 2024. (Figure 1, middle and lowest charts)

Figure 2

Level vs. Rate of Change. It is a misimpression to state that January's CPI is at the same level as December's. While the rate of change may be the same, the level is definitively not.

The Philippine Statistics Authority's (PSA) nominal prices determine the level, whereas the CPI figures represent the base-effect represented in percentages. (Figure 2, topmost graph)

The nominal rates also reveal the cumulative effects of the CPI. Even if growth rates stall or decrease (slow), the continued increase in general prices persists.

This leads to sustained hardship, especially for those living on the margins.

III. The Government’s Convenient Attribution Bias: The Typhoon Fallacy

Authorities often employ self-serving attribution bias—crediting successes to internal factors while attributing failures to external ones—to explain economic phenomena. For instance, they attribute recent food price increases to 'typhoons/weather disturbances' or diseases like African Swine Fever.

The Philippines experiences an average of 20 typhoons annually. If the establishment's logic were consistently true, food prices should be perpetually elevated.

A review of the 10 worst typhoons to hit the country—events that, according to the establishment narrative, should have triggered inflation surges—shows little correlation with CPI spikes. In fact, food CPI exhibited a downtrend in seven of the nine years when these devastating typhoons occurred (the other two took place in 2020). (Figure 2, middle pane)

But, of course, the vulnerable public is expected to accept the official narrative without question—because the echo chamber insists on it!

IV. Baseline Changes: Engineering GDP Growth

Policymakers are always seeking ways to justify their free-lunch economic policies. 

Now, they are signaling a change in the baseline rates of the most sensitive data—particularly the CPI and the GDP—starting in 2026.

Inquirer.net, February 6, 2025: The Philippine Statistics Authority (PSA) will change again the base year used to calculate inflation and gross domestic product (GDP) so that key data could better capture the latest economic conditions.

This adjustment, while technical in nature, conveniently offers a tool for reshaping inflation narratives, making future price pressures appear more benign.

Well, if history serves as a guide, "could better capture the latest economic conditions" often implies adjusting baseline rates to lower the CPI. Comparing the CPI with an overlap of the 2006 and 2018 baselines reveals a significant difference, with the 2018 baseline showing a markedly lower CPI. (Figure 2, lowest diagram)

The BSP still publishes data series from 2000, 2006, 2012, and 2018.

Fundamentally, a high Nominal GDP (NGDP) when calculated against a reduced CPI (as a deflator or implicit price index) results in a HIGHER headline GDP! Voilà! A statistical boom! 

Will the Philippine government achieve its coveted "middle-income status" economy by inflating its statistics? 

V. The Falling Rice Prices: Why the Food Emergency Security?

Authorities also claim that "rice inflation contracted to 2.3% in January from the 0.8% clip in December." 

If this is the case, why the sudden need for a Food Emergency Security (FES) program, which includes light-handed price controls (a maximum Suggested Retail Price) and the release of the National Food Authority’s "buffer rice" or reserves?

Figure 3

If anything, these interventions have temporarily suppressed CPI in the short term. 

In any case, here is a timeline of political interventions in the food and agricultural industry, which should serve as template. 

February 15, 2019: GMA News: Duterte signs rice tariffication bill into law

March 11, 2020: DTI: Nationwide price freeze on basic necessities in effect amid COVID-19 emergency 

February 2, 2021: Inquirer: DA: Price ceiling on pork, chicken products to start on Feb. 8

April 8, 2021: Portcalls: Duterte signs EO lowering tariff for pork imports 

June 1 2024: DTI: DTI secures voluntary price freeze commitments for more basic necessities 

However, as history shows, the insidious effects of distortive policies surface over time. Intervention begets more intervention, as authorities scramble to manage the unintended consequences of their previous actions. Consequently, food CPI remains under pressure. (Figure 3, topmost graph)

Ironically, the easing of interventions may have contributed to the decline in CPI from the end of 2022 to mid-2024. 

VI. The Rice Ceiling Trap: A Self-Inflicted Supply Crisis and the Vicious Cycle of Interventionism 

Price ceilings create artificial demand spikes. With buffer stocks being released into the market, their rapid depletion seems inevitable. This means authorities will soon have to replenish reserves—betting that global rice prices remain stable. (Figure 3, middle window)

But even if global rice prices decline, large-scale stockpiling would exacerbate the twin deficits (fiscal and trade deficits). The agricultural sector reported near milestone trade deficit in Q3 2024. (Figure 3, lowest image)

This, in turn, would put additional pressure on the USD-PHP exchange rate, where further peso depreciation would translate into higher import costs, which would help feed into the current inflation cycle.

And now, the Department of Agrarian Reform (DAR) is considering imposing FES on pork prices as well!

It appears authorities believe they can override market dynamics and economic laws through sheer force of policy. But history has shown time and again that such attempts only lead to greater imbalances—necessitating even more interventions in an endless loop of self-inflicted crises.

Good luck to the believers!

VII. Treasury Markets Are Already Telegraphing Inflation Risk

The Philippine Treasury markets are already reflecting this narrative.

Figure 4

The yield curve continues to fall, leading to a bull steepening—a clear signal that the BSP is likely to cut rates. (Figure 4, topmost graph)

While this may provide short-term relief, it also carries risks: looser monetary policy could reignite inflationary pressures while signaling heightened economic uncertainty. 

VIII. The Contradiction: Why a Food Security Emergency Amid Falling Prices? 

If rice prices are declining and core CPI is slowing, why are authorities aggressively pushing a Food Emergency Security (FES) program? 

The short answer: they want their free lunches to continue. 

Whether through subsidies, price controls, or other interventionist policies, they are ensuring a steady flow of populist measures. 

By the way, the National mid-term Election is in May! 

Importantly, this push signifies a calculated move to secure easier access to cheap credit—leveraging monetary easing to sustain economic illusions. 

IX. 2024 Fiscal Snapshot: Rising Debt, the Trade-Off for 5.6% GDP 

The Bureau of the Treasury (BTr) has yet to release its cash operations report for February 28, limiting our full-year assessment of fiscal health. 

Still, while public debt eased slightly from Php 16.09 trillion in November to Php 16.05 trillion in December, total 2024 public debt closed at an all-time high. 

While the consensus was previously pleased that a slowing deficit had led to a decrease in net debt increases, 2024 experienced "a 9.8% or Php 1.44 trillion increase from the end-2023 level."  (Figure 4, middle chart)

The Bureau of Treasury (BTr) further reported that the "corresponding debt-to-GDP ratio of 60.7% was slightly above the 60.6% revised Medium-Term Fiscal Framework estimate, on account of the lower-than-expected full-year real GDP growth outcome of 5.6%" (Figure 4, lowest diagram)

Yet, this debt increase came despite a supposedly “restrained” deficit—largely due to (potential) record government spending in 2024. 

Put simply, the Php 1.44 trillion debt increase was the trade-off for achieving 5.6% GDP growth. 

There is a cost to everything. 

Yet, the full cost of debt servicing has yet to be published. 

Crucially, this 5.6% GDP growth was artificially fueled by: 

-BSP’s easy money policies,

-Record public spending,

-All-time high public debt,

-Historic bank credit expansion, and

-Near full employment.

Any reversal of these factors—or even a partial pullback—could WIDEN the fiscal deficit to new highs and PUSH debt-to-GDP further upward. 

There is more.

X. Mounting Risks of Philippine Peso Devaluation and Inflation Risks

Figure 5

External debt jumped 11.4% in 2024, reaching an all-time high of Php 5.12 trillion. 

Its share of total debt rose for the third consecutive year, now at 31.9%—partly due to peso depreciation but mostly from fresh borrowings totaling Php 401.7 billion. (Figure 5, topmost chart)

Meanwhile, BSP’s January 2025 Gross International Reserves (GIR) shrank by $3.24 billion—its steepest decline since September 2022. This was largely due to their defense of the Philippine peso, even though USD/PHP barely hit 59. (Figure 5, middle pane)

The BSP appears to have adjusted its intervention ceiling or their "upper band" to around 58.7. 

Falling GIR is a price to pay for the USD/PHP peg. (discussed last January)

And remember, 'ample reserves' have barely slowed the USDPHP's juggernaut. (Figure 5, lowest chart)

The BSP also revealed another reason for the GIR decline was a "drawdown on the national government’s (NG) deposits with the BSP to pay off its foreign currency debt obligations." 

Adding another layer of irony, the Philippine government raised $2.25 billion and €1 billion on January 24th. These fresh funds may temporarily boost February’s GIR, reflecting the National Government’s deposits with the BSP. 

Going forward, the government will require even more foreign exchange to service its external debt over time. This suggests continued reliance on foreign borrowing—expanding the BTr’s outstanding FX debt stock and increasing the risk of further peso depreciation. 

With growing dollar scarcity, the BSP’s need to refinance public debt, and the rising FX debt appetite of elite institutions, the government and central bank path-dependence on liquidity injections via easy money and fiscal stimulus have only deepened. 

This, in turn, heightens inflation risks—potentially fueling the third wave of the present inflation cycle. 

Take heed.