When economics and politics should not mix
COMMONSENSE - Marichu A. Villanueva (The Philippine Star) - July 16, 2018 - 12:00am

We had a very good laugh in our daily story conference at the newsroom last week. It was about an incredulous recommendation of Agriculture Secretary Emmanuel Piñol to remove food from the basket of basic goods and services in the computation of consumer price index (CPI). Piñol must be flummoxed by his own ignorance that economics and politics are two different fields that cannot be mixed. If you mix the two, you end up with stupid ideas.

And as “Economics 101” taught us, the CPI measures changes in the price levels in the market over a period of time of the basket of consumer goods and services purchased by households. The CPI is one of several price indices calculated by the Philippine Statistics Authority (PSA).

The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them for the periodic monitoring and comparing the results on month-to-month basis and year-ago levels. Professional statisticians and econometricians measure and examine the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care.

Thus, the annual percentage change in a CPI is used as a measure of inflation.

The PSA released its latest CPI report which showed headline inflation leapt to an average of 5.2 percent in June. On month-to-month basis, inflation intensified from 4.6 percent average last May.

The higher June inflation rate coincided with the end of the first two years in office of President Rodrigo Duterte. Naturally, arch administration critics and opposition leaders used this as an issue against President Duterte.

The PSA comes out regularly with a monthly CPI report on its survey of monitored price changes of goods and services. The PSA is an agency under the National Economic Development Authority (NEDA) headed by Socio-Economic Planning Secretary Ernesto Pernia. Under the NEDA charter, the NEDA Board meets every month and is chaired by President Duterte.

To his credit, President Duterte makes no bones about his lack of knowledge about economics but leaves that subject matter to the experts. But a former sportswriter, ex-Governor, and a self-confessed farmer by heart, Piñol blurts out: “I would like to refute the reports of the economic cluster ranking price of food and price of rice as the cause of inflation.”

“Why will you include the prices of food behind inflation when it is only indicative of the cost of production such as fuel and farm inputs?” he asked. For someone taking up the cudgels of farmers, Piñol’s bleeding heart could win brownie points for him.

Speaking before reporters covering the Agriculture Department last Monday, Piñol lashed at his fellow Cabinet officials composed of Finance Secretary Carlos “Sonny” Dominguez, Department of Budget and Management (DBM) Secretary Benjamin Diokno and Pernia. Collectively called the Duterte economic team, it explained that the country’s inflation rate last month was largely pushed beyond target by escalation in prices of food and transport.

“I don’t believe that food should be included in the list of items that contribute to inflation,” Piñol pointed out. Then the funny thing is when Piñol went out his way to take on Vice President Leni Robredo after the latter rebutted the “incompetence” criticisms against her by President Duterte. In so many words, VP Robredo retorted it’s the economy, not God, “stupid!” Being thickly involved during the May 2016 presidential campaign of former Davao City Mayor, Piñol thought he was again needed to circle the wagon to protect President Duterte from these latest anti-administration attacks.

“Even this late, I am still offering to give Vice President Robredo a briefing on the state of Philippine agriculture to help her realize that the ‘laylayan ng lipunan’ that she fondly talks about and says have been neglected by government are actually the farmers and fishermen, the very people whose lives will be affected if she continues to use the price of rice and other food commodity as a political issue,” Piñol railed.

The only sensible thing in Piñol’s rants was his own admission of what really has been ailing the agriculture sector which is under his stewardship: “In spite of the neglect and lack of understanding of some of our top officials of the actual state of life of the Filipino farmers and fishermen, they have steadily contributed to stabilizing the supply of food in the country.”

If indeed he’s doing so much to improve the country’s agriculture, why is it we have to buy more imported rice, garlic, onions, and other agricultural products from other countries? Precisely, this has been the situation because our agricultural production have not even reached double digit growth in years.

Supposedly, Piñol would raise his idea with the economic cluster during the Cabinet meeting at Malacañang the next day. Offhand though, Piñol conceded the economic team would shoot down his suggestion. Obviously he knows very well his idea to remove the food basket from inflation indicators does not make sense at all. But to him, his simplistic idea makes sense only for political rhetoric.

But it may interest Piñol to know that there is an on-going debate right now at the level of NEDA to remove cigarette and alcoholic products like beer from the CPI basket of goods. The PSA reported 20.6 percent spike in the prices of alcoholic beverages and tobacco products in areas outside the national capital region. These are the so-called “sin” products, the prices of which shot up following the second round of adjustments on “sin” taxes.

However, there is reportedly a strong resistance against this government move to show inflation is going down. This is because removing the “sin” products from the CPI calculations would, in effect, ignore its impact to lower income and poor people who consume it like basic necessities for them.

Sound economic policies, when mixed with politics, may produce the desired result.

But more often than not, it creates more problems than viable solutions.

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