Stickiness

Our inflation rate shot up to 7.2 percent in September. That is substantially higher than August’s 6.1 percent.

The inflationary spike is blamed on bad weather, expensive oil and higher food and utility costs. But that might create the impression that the high inflation rate is a transient phenomenon. It is not. There is a certain stickiness in the elevated inflation rate creating havoc in our daily lives.

Our vulnerability to high sustained inflation rates is due to structural factors and chronically weak economic governance. We have an archaic and monopolistic logistics system. It was often mentioned that transporting goods from Mindanao to Luzon was more expensive than transporting anything from Bangkok to Manila. Today, it is cheaper for Filipinos to vacation in Vietnam than spend a week in Bohol.

High food prices is due to the continuing inefficiency of our agriculture. Today, is costs more to buy a kilo of palay from our farmers than a kilo of milled rice imported from abroad. Our ube has become a global sensation – and the Vietnamese are now growing it more efficiently, just like the Taiwanese found a better way to make nata de coco some years back.

Being an archipelago is surely a handicap. But we never did enough of anything to overcome the challenges of geographic fragmentation. The Indonesians, inhabitants of a more widespread archipelago, are just about ready to launch their fast rail systems.

Despite several trips to Singapore in the name of attracting investments – mostly coinciding with the Singapore F1 Grand Prix – we are now suffering from a net outflow of direct investments. Without a steady stream of investments, we cannot raise national productivity. We cannot bring down unemployment. Of the middle-level economies of Asia, the Philippines is getting the smallest share of direct investments. Our own conglomerates are finding it more profitable to take their capital abroad.

Our agricultural productivity is stagnant. Our policymakers never found the courage to confront archaic policies that kept our farms small and trapped in subsistence-level production. Over the past few years, we relied on importing more and more of our staple food items. That helps drain our foreign currency reserves.

With our stunted industrial sector, we are unable to compete in the global market. We have no technological exports. We ship out banana chips instead of electronic chips. And if we sell those banana chips to the sprawling China market, opportunist politicians peddling xenophobia will try to characterize that as some form of national security hazard.

We have never had a comprehensive industrialization strategy. That condemns us to being a net importer saddled with a weak currency.

The closest approximation of a manufacturing strategy we have at the moment is the so-called Pax Silica imposed on us by US geopolitical calculations. But this is just a variation of the old export zone strategy that failed us in its past reincarnations.

Power supply is essential to any economic modernization strategy. After many years of grappling with the complex problems related to our power supply, energy remains short and expensive in this country. Electricity is actually costlier here than in Singapore. How do we attract any serious investment in our economy if we cannot show a plan to bring down power costs and improve reliability? It is like we are asking investors to be possessed by a death wish.

We cannot even assure the stability of our currency. Over the recent weeks, the peso’s exchange value plunged substantially. A depreciating currency is an inflation driver.

But since we have no reliable exports and depend on remittances from the human beings we force abroad, we have meager means to build up our currency reserves. As our imports grow and remittances stagnate, continuing currency depreciation becomes a curse on our economic prospects.

The icing on this unwholesome cake is our indebtedness. By the time Marcos Jr. finally leaves office, our sovereign debt will have about doubled from what it was when he assumed the presidency. He will leave the presidency with a legacy of fiscal debility. We are where we are because he failed to exercise leadership in steering the economy towards sustainability.

In sum, there are a hundred factors fueling an elevated inflation rate. I could not think of a single one that will structurally reduce inflationary pressure into the foreseeable future. Inflation is a scourge on the people and in our case, it is gifted with the characteristic of stickiness because of failed governance.

Just weeks down the road, we are anticipating a “super” El Niño hitting us with full force. This will bring drought and water shortages. If it hits as advertised, we might have to momentarily abandon the Mega Manila area, a congested urban tangle dependent on a single small dam.

Even ahead of that, we could be dealing with a mobility crisis. Thanks to our narrow-minded foreign policy, China is now withholding oil exports to us. Save for one minor Petron facility, we have no refining capacity. We import nearly all our refined fuel from either Singapore or China. No fuel is more expensive than no fuel.

In a few days, we expect our third quarter GDP growth number to be announced. The unofficial estimate now doing the rounds puts our third quarter numbers at even worse than the previous two quarters.

Hopefully Marcos Jr. will be enjoying the F1 races when the dismal numbers are unveiled.