Inflation

The sky is not falling – although some, for political purposes, might want us to believe so.

The inflation rate rose in February, depending on the base year used for calculation, between 3.9 percent and 4.5 percent. That is for the month. Our economic managers seem confident that the full-year inflation rate will be significantly more benign.

The BSP and the Monetary Board, mandated to keep inflation in check, do not seem to be panicking. They did not raise interest rates in their last meeting. They would have if the inflationary surge was truly alarming.

In an atmosphere where our quality of life seems threatened by rapidly eroding purchasing power, it is easy to rabble-rouse. Again, for political ends, agitators are blaming freshly enacted tax reform measures for what seems to be an inflationary surge.

Not true, say the economists from the Department of Finance. While some of the new excise taxes did cause an increase in commodity prices, other factors play larger roles in explaining the inflationary uptick. The excise taxes did significantly raise prices for tobacco, alcohol and sugar-sweetened beverages. But many other factors fuel the inflationary surge.

According to Gil Beltran of the DOF, “only a little less than 10 percent of the inflation could be attributed to excise tax adjustments under TRAIN.” In order to isolate the effects of TRAIN, Finance Undersecretary Karl Kendrick Chua says month-on-month comparison be done. From January to February, inflation is calculated at 0.8 percent.

Specifically, the economists point to the peso’s depreciation, the increase in global prices for oil products and the spike in rice prices as the major factors influencing inflationary pressures. The first will probably be good for our economy in the long term. The second is a factor beyond our control. The third is due to appalling incompetence at the National Food Authority.

Some of the inflation is also weather-related. The two consumer items with double-digit inflation were fish and corn. Both are due to supply pressures affected storms affecting the Visayas and Mindanao the past few months. It is expected that prices will normalize soon.

The item where price increase is highest is tobacco. Here the cause is undoubtedly the steep hike in “sin taxes.” The price increase is entirely intended in this case. The same holds for sugary beverages.

Higher duties on petroleum products will drive up the costs of electricity, gas and other fuels by around 9.2 percent. That is magnified by the fact that Dubai crude rose by 15.8 percent while the peso depreciated by 3.6 percent. This is the commodity where inflationary pressure is greatest and most immediately felt.

The BSP believes that the February inflationary spike will eventually moderate. For this reason, the institution did not react to last month’s spike but chose instead to look much further ahead, according to BSP Governor Nestor Espenilla. He expressed confidence that as the year wears on, the inflation rate will settle well within the 2 percent to 4 percent range expected.

Power rates

Power distributor Meralco announced its own measures to cushion the impact of higher generation charges on consumers.

While the cost of electricity supplied by the generation companies increased by P0.97 per kWh, Meralco will increase its charges by P0.85 in their March billing. The balance of P0.12 will be tacked on in the April billing period.

The price adjustment brings the overall rates to P10.32 per kWh from last month’s P9.47 per kWh. This translates in an increase of P170 in the bill of residential customers consuming 200 kWh.

Tighter supply conditions in the Luzon grid explain the increase in generation charges. Because of warmer conditions, demand for power in the grid grew by 366 MW. Meanwhile, around 1,000 MW of generating capacity went on scheduled maintenance outage. This is the reason why, on several instances the past few weeks, a “yellow alert” was issued for the Luzon grid.

The hot months starting March normally see the highest demand for power. During these hot months, our generating plants also become prone to unscheduled outages.

When demand grows and supply tightens, this reflects in the wholesale electricity spot market (WESM). This is where independent power producers sell their output to distribution utilities. It is at the WESM where the spike in power costs happens.

The share of WESM purchases in Meralco’s total requirement was 19 percent last February. The higher prices of these purchases account for much of the higher charges to be found in this month’s power bill.

In addition to higher generation charges, transmission charges increased by P0.0503 per kWh due to higher ancillary service charges billed by the National Grid Corporation. Taxes and other charges went up by P0.1583 per kWh this month.

Meralco reminds its consumers that the distribution, supply and metering charges the company collects remained unchanged for 32 months now. The higher billings the company will send out this month reflect pass-through charges for the power generators, the transmission company and policy charges such as the FIT-All remitted to government.

The company encourages its customers to practice energy efficiency at all times. Among these are unplugging appliances not in use to avoid what is called “phantom load” and keeping thermostats at 25 degrees Celsius. We all know our power reserves are thin and any major disruption in supply will send prices askew.

Unfortunately, power prices are not insulated from the general rise in prices. A weaker peso and sharply higher prices for imported fuel will have to reflect on our power bills.