Energy price shock

As we try to forcefully recover from the economic wounds of COVID-19, here we are faced with another economic battle in the hike of petroleum prices. A few weeks ago, world leaders took a stand on Russia and Ukraine while our President wanted to stay ‘neutral.’ Eventually, he was forced to take a stand. In the geo-political world, where most countries have become interdependent, it is absurd to stand ‘neutral.’ Today, the Philippines is ready to back the US by opening our bases if the conflict spreads.

Two weeks have passed and we already feel the effects of the conflict between Russia and Ukraine. After the United States banned oil and gas, price hikes suddenly greeted our communities. Now we are bearing the brunt of the conflict. Multinational firms have packed up and left Russia while the US and other countries are starting to revoke normal trade relations with Russia.

Will the surge in energy prices cause an economic plunge in our country? What steps will the President’s economic team take? Are we doomed to fall into a recession?

When Shell, Caltex, Seaoil and CleanFuel announced last week that there will be an increase of P5.85 per liter for diesel, P3.60 per liter for gasoline and P4.10 per liter for kerosene by 6 a.m. on March 8, motorists queued at gas stations all over the country to fill up their tanks before the set time and day.

Of course, we all know what comes after this. As oil prices continue to rise, so will other products and services that make use of oil. In fact, prices of basic commodities such as rice and meat have already started to increase, for the obvious reason that these products are transported by gas-powered vehicles from farms to markets.

What is more worrisome is the report that said price hike will continue in the coming weeks. According to JPMorgan Chase & Co., the oil consumption patterns of Asian countries like the Philippines is bound to be affected by the continued surge in global oil prices caused by the war in Ukraine. JPMorgan Chief Economist for ASEAN Sin Beng Ong said, “In our view, there are two main channels through which an adverse energy price shock would impact the region, the first via a negative real income impact on growth, initially via private consumption, and second, with a lag, through trade, which then affects capital spending.”

Ruben Carlo O. Asuncion, chief Economist of Union Bank of the Philippines, said that the rising oil prices and its impact on inflation could affect both consumers and businesses. He added, “Definitely there will be some cost-push inflation that can soften consumer and business consumption that incidentally are just recovering from the crippling impacts of the coronavirus disease 2019 pandemic.”

What has the government done so far to cushion the effects of the oil price hike in the lives of Filipinos? President Duterte has approved a P3-billion fuel subsidy for public utility drivers as well as agricultural workers. There are also calls to amend the oil deregulation law to include the creation of a strategic petroleum reserve when oil prices are lower. Another measure to take with an immediate effect of lowering fuel prices is the suspension of the tax on fuel. Our lawmakers have appealed to the President to declare a state of economic emergency. But of course Congress is on break and will resume session on May 23, that is after the national elections. So, I don’t really know how much can be done at this point in time.

Bank of the Philippine Islands lead economist Jun Neri said the continuous fuel price hikes could dampen what could otherwise be a robust consumption recovery this year. It could also push the country’s inflation up, together with the rising costs of utilities such as water and power.

To what state will this continuous fuel price hike bring the nation? Analysts said oil rates may continue to rise until end of the month. It must be noted that fuel prices have consistently gone up since the beginning of the year. The cumulative net increase was brought to P9.15 for diesel, P6.75 for gas and P8.45 for kerosene. This is on top of last year’s net increase that amounted to over P10 per liter.

Transport groups have already asked for a fare hike and Meralco has also announced a higher electricity bill this month. The cost of transporting goods, both local and international, are also projected to increase.

Last year the World Bank came up with a positive report about our economy, saying that “the economy has started to recover with a 3.7 percent year-on-year expansion in the first half of 2021, buoyed by public investment and a recovery in the external environment. With continues recovery and reform efforts, the country is getting back on track on its way from a lower middle-income country with a gross national income per capita of $3,430 in 2020 to an upper middle-income country (per capita income range of $4,096 to $12,695) in the short term.”

We’ve been keeping our fingers crossed for COVID-19 cases to continue its downward trend and for the economy to recover. However, this Russia-Ukraine conflict has now taken us by surprise. What will happen now to Juan de la Cruz? As reported by the Philippine Statistics Authority (PSA), the poverty incidence among the population increased to 23.7 percent during the first half of 2021, from 21.1 percent in the same period of 2018. This translates to 3.9 million more Filipinos living in poverty. Sanamagan!

If government doesn’t resolve our economic woes on price hikes, prolonged periods may definitely lead us to a recession. As it is, although government has realized how rigid their COVID-19 guidelines and restrictions have caused institutions, businesses, factories and the like to close up – they are continuing to soften the IATF rules. But is this enough? Every department of government (both local and national) must do a lot of introspection. They should stop their programs on trying to squeeze out money from the citizens. They should realize how much all their demands on taxes and permits are taking a toll on the people. Abangan!