$81

The good news is that global economic recovery appears to be on good footing. The bad news is that crude oil prices have risen sharply to about $81 per barrel.

Our consumers will begin feeling the new spike in oil prices in the next round of pump price adjustment. The peso might have gained against the dollar — but that will not sufficiently cover the rise in the dollar price of oil.

Two events most significantly underpin the spike in crude oil prices: the latest figures indicating a robust growth in Chinese manufacturing and the devaluation of the dollar relative to a basket of global currencies.

China, we all know, maintains the highest rate of growth among the world’s economies. It is on the verge of displacing Japan as the second largest economy after Japan. With its large population, it has become a major consumer of hydrocarbons.

By the latest estimates, China’s economy will be expanding at the same fast pace it maintained before the global recession. That implies a large demand for oil — at any price.

The expected rise in China’s demand for oil is complemented by the recovery of the US manufacturing sector. The US is the world’s largest consumer of oil. A large part of American oil demand is met by importing the vital commodity from the international market. Reluctance to increase US oil production by drilling offshore or in pristine Alaska, driven by the major BP oil spills in the Gulf of Mexico, means American oil demand will continue to put pressure on global prices.

Oil trading is priced in US dollars. That means that a devaluation of the dollar will immediately reflect in oil pricing.

The US dollar has been losing ground to both the Japanese yen and the Euro. Just a quarter ago, the Euro fell to a low of $1.19. The currency has since recovered to over $1.37. The re-pricing of oil least affects the Europeans. In Euros, oil prices are more or less holding steady.

For the rest of the world including us, however, the re-pricing of fossil fuels will reflect in a net increase. That net increase in the price of the commodity will add to the building inflationary pressures fueled by the recovery itself.

That will have consequences on economic performance.

The last time oil prices rose to the dollar level it is now exploring, the world economy entered into a recessionary phase. That recessionary trend was abetted by financial crisis.

Should oil prices continue to move closer to the $90 per barrel level, American consumers will bear the brunt of its inflationary effects. As the dollar weakens, imports will cost more for American consumers. With less disposable income, they will tend to buy less.

A diminishing US consumer appetite will have adverse effects on countries, like ours, dependent on exportation to the American market. We will have to counteract that by reorienting our exports to our own rapidly expanding regional neighborhood.

The biggest domestic market in our neighborhood is China’s. Rapid economic expansion will enlarge that market even more. Although Chinese authorities are reluctant to revalue their currency, that prospect seems inevitable given that countries mammoth trade surplus and currency reserves. A revaluation of the Chinese currency will serve to make her domestic market even more attractive to neighboring exporting economies.

The place of China in our economic future will definitely increase in importance in the coming years. The Chinese know that perhaps more than we are ready to acknowledge ourselves. We see that in the manner Beijing conducts its diplomacy towards the Southeast Asian region, particularly the Philippines.

Brighter growth prospects for the emerging economies of East and Southeast Asia reflect in the investment patterns we have been seeing the past few months. The most visible effects of those patterns are the booming capital markets of the region. With interest rates depressed everywhere, money is flowing into equities.

This explains the bull run the Philippine Stock Exchange has been experiencing the past few weeks. The Phisix has exceeded the 4,000-point level and exploring a higher range. So-called “hot money” has been flowing into our market, taking advantage of a profitable corporate sector and betting on the continued strength of the peso.

It has become such that the major investment funds are not waiting for too much good news before investing. It is enough that there is no bad news.

We have been expecting our market to undergo a technical correction for two weeks now. But it has not. Investor interest remains strong. It is strong because the liquidity of investment funds worldwide has nowhere else to go but equities in the emerging markets given that interest rates remain depressed everywhere.

What might cause the brakes to be applied to the booming stock exchanges of the region will be a gradual increase in interest rates. This will happen when it begins to appear that inflation is a real threat and therefore the excess liquidity in the market might need some mopping up.

Meanwhile, we expect the peso to continue improving against the dollar. That is as much due to the dollar’s weakness as it is due to the peso’s strengths.

The peso’s appreciation has an upside as well as a downside. On the upside, it will help us temper inflation caused by costlier imports such as oil. On the downside, it will cut into the peso value of remittances on which many of our families depend. It will also make our exports less competitive, especially exports to weak currency economies such as the US.

At any rate, it is more probable that the peso’s appreciation will not be enough to shield our consumers from higher oil prices.