Inflation guess-timates

One of the most difficult tasks that face economists these days, as world economies wake up at markedly different paces from this pandemic, is getting inflation estimates to as close to real as possible.

In the old normal, monetary policies were the best weapons wielded to keep inflation within government targets – and these often worked, unless something extraordinary like a civil war or the bursting of a housing or tech bubble was the cause.

These days, though, the world’s supply chains are going crazy. What had taken all of its 195 countries to work in almost clockwork precision over decades suddenly went duh? when many cities stood still and nations’ borders closed.

While we were busy lamenting about the curtailment of our movements and protecting ourselves from catching the deadly virus, businesses were calibrating how the pandemic lockdowns would affect their sales. As it has turned out, many guessed wrong.

Take cheeses, for example. If you noticed the scarcity of imported queso de bola last Christmas, it had also fallen victim to the pandemic disruptions. Cheese makers, many based in Europe, had initially gone into a frenzy at the start of the lockdowns as restaurants closed and orders for cheeses stopped.

Since they had cows to milk, many decided to go for hard cheeses instead of soft ones that took less time to mature, but could not be kept in storage for long periods of time. What they did not reckon with was the brewing shipping disorder.

Overstressed supply networks

Shipping, at the heart of the global supply chain, is one overstressed creature. When formerly it had an almost rhythmic flow of goods when loading and unloading from one port to another, the near stoppage of economies cast away its comfort zone.

In the early months of 2020, container vans and ocean-going vessels piled up in ports as demand for many consumer goods changed. For example, people stopped buying fashion wear, choosing instead sweatpants while doing work at home. Staying at home 24/7 also became a reason for a rise in home exercise machines, substituting for fitness gyms that had to be closed.

There’s a long list of what became “in” and what turned out to be not-so-hot. Suddenly, there was a surge in demand for home entertainment systems, electronic gadgets, food deliveries, and even cooking appliances. Make-up was out; so were travel backpacks and luggage.

With our beloved queso de bola, importers either missed the last ship to get the Christmas orders to arrive on time into the country or had hedged that a dampened consumer demand and weakened purchasing power would not be worth the bother of securing the 2020 Christmas orders.

High prices

Fast-forward to today. The US and Europe are regaining their appetite for all things curtailed in the last 12 months and this has created a different set of problems for businesses and the supply chain. For one, after laying off workers because there was not enough work, finding people to do those jobs now has become a challenge.

Shortages and overstocks are the new normal for those that had not been able to correctly calculate demand and supply. More importantly, the imbalance in demand and supply has resulted in price upheavals – and inflation.

In the US, for example, inflation in July rose to a 30-year high, with Americans fretting over how little food they could buy with the same amount of money compared to a year ago. The Federal Reserve was unfazed, insisting that this was a temporary supply-demand predicament that needed no fiscal intervention.

The same view was shared by the Bangko Sentral ng Pilipinas, even if inflation reached 4.9 percent last month. There was guess-timation by some economists for September, as supply chain disruptions hit the food sector – especially those that are part of the importation cycle.

Elevated prices of corn, wheat, barley, and sorghum – all essential ingredients in formulating feed mixes used by chicken, egg, and pork growers – are sure to make their way into retail market prices towards the end of the year, at the height of the holiday season, when the market becomes more price sensitive to almost everything.

As our monetary policy makers insist, the high inflation levels we are now experiencing will be temporary, and rightly so. The big question, though, is just how long will this supply-demand inflation continue.

Importation salve

This abnormal food supply situation has fallen squarely on the Department of Agriculture, and right now, the agency seems to be as overwhelmed as most consumers are to see high prices of pork, chicken, fish, and vegetables, while money in purses remain scant.

The DA is now on a track to support importation, even if temporarily, as a stopgap measure. It’s an uncomfortable decision that Agriculture Secretary William Dar, not an economist or a bureaucratic activist, must be struggling with.

He listens, though, to his team of experts, and yields to the wisdom of the government’s economic think-tank – and this is all a good thing. This has happened with pork when most of our pig farms had to cull their populations to stop the spread of the African swine fever. This is happening to fish now.

As long as there is a delicate balance and a commitment observed to protect our farmers and livestock growers, importation should not be politicized.

Going back to queso de bola, if we do get supermarket shelves stocked this year, it should be worth the supply disruption. Most hard cheeses, after all, taste better as they age.

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