Uphill

Last year, Panfilo Lacson declared only an insane person would want to be president of this country, considering all the problems we confront. Then he filed his candidacy.

The fact that Lacson ran and miserably lost in a lopsided presidential contest does not invalidate the premise underpinning his earlier declaration. The next president will have to summon uncommon tenacity to lead the country through a very difficult time.

The brunt of all the unwholesome consequences arising from the Russian invasion of Ukraine will hit us in the second half of this year. We confront not only surging inflation rates driven by sharply rising fuel costs but possibly food shortages. Russia and Ukraine are major exporters of both energy and food.

Disruptions in the energy and food supply chain from these two countries beset by war compound the disruptions caused by the pandemic. Over the last two quarters, forecasts for global growth have been consistently adjusted downwards.

Our “fighting” growth targets of between 7 and 8 percent this year have been cut down to 6 percent. Even that is a “fighting” target, considering we import nearly all the oil we consume. The Philippine Statistics Authority (PSA) reported inflation spiked to 5.6 percent in May. This is close to the “elevated” 6 percent inflation rate we experienced in 2018.

Nevertheless, the Philippines is considered among the better situated among the ASEAN economies. We could lead growth in the region this year – although that might not mean very much to ordinary families paying more for transport, energy and food needs.

The US reported its May inflation at 8.6 percent. It could spike further, according to economic analysts. Fuel prices are now at unprecedented levels in the US, although they remain much cheaper than everywhere else in the world because of how the product is taxed.

The inflation rate in the US is a serious political issue. The higher inflation goes, the lower the approval ratings for President Biden. Inflation concerns could tip the balance in favor of the Republicans in next November’s midterm elections. The Democrats are desperate to curb inflation for their own political survival. But the measures available to do so will affect the growth prospects of other nations.

According to several economic think tanks, the reason the US inflation rate is higher than those in other industrial economies is strong American consumer demand. The strong demand is the result of larger public spending to revive the economy post-pandemic.

It is less likely the Biden government will rein in public spending over the next few months. The spending, including cancellation of student debts, is popular and has produced strong jobs growth.

What is more likely is the resort to monetary policy to bring down the inflation rate. This can only mean raising interest rates substantially in the near term. Doing so will temper growth by raising the cost of money.

Resort to monetary instruments reflects in the American property market. As mortgage rates rise, housing demand slows. But property prices remain high.

The prospect of higher interest rates has pushed up the dollar’s exchange rate. This, in turn, lowers demand for US exports to the rest of the world.

Most dramatically, the prospect of higher interest rates forced the depreciation of stock prices. Trillions of stock value evaporated the past week after dramatic drastic drops in the US stock market.

The loss of stock value will mean lower reinvestment by the corporations. In turn, this will produce lower growth further down the road.

There is some debate among economists over the prospect of the US economy sliding into recession because of policies intended to curb inflation. The outcome could be worse. It could produce a long bout with stagflation in the US.

What happens to the US economy will affect our own economic prospects greatly.

We saw how the drop in the US stock exchange instantly reflected in drops in our own stock exchange. The prospect of higher interest rates pushed up the dollar and undermines the peso in the currency exchanges. A weaker peso raises the prices of both our manufacturing inputs and our food imports.

All these, of course, are beyond our control. We have no way to influence stock prices elsewhere and the policy rates that underpin them. A weaker peso magnifies the price of our food and energy imports. The impact on ordinary consumers is largely adverse.

In the face of larger global trends, expect our inflation rate to remain “elevated.” Expect fuel and food costs to become even more painful. Expect social distress to escalate and opportunistic rabble-rousers to paint the town red.

These are the prevailing conditions as we transition to the new presidency. It is not a conjuncture the president-elect relishes, to be sure. But it is one that will summon all his wisdom and energy.

It benefits the nation that the next president assumes office with humongous political capital and the solid support of nearly all the political parties. It will help that he has assembled a crack team of veteran policymakers to form his Cabinet. It will help that he enjoys high trust ratings despite the intense hate campaign mounted against him.

The president-elect is not certified insane as Lacson declared anyone aspiring for the post must be. But he will have to work with manic energy from his first day in office to mitigate the harm on our people that the larger trends foretell.

The policy options are complex but he will have the benefit of wise counsel.