6.4%

The BSP forecast a top range of 6.2 percent. Yesterday, the Philippine Statistics Authority announced the inflation rate for August again breached forecast and reached 6.4 percent.

We are not unfamiliar with inflation at this range. In our recent economic history, we hit double-digit inflation rates several times. But the last time we hit this monthly rate was nine years ago.

Nine years ago, government pursued expansionary policies to counter the global recessionary scourge caused by the financial meltdown that began in the US. Because of these “counter-cyclical” measures, the Philippine economy was among the few that escaped the recessionary scourge. At that time, an elevated inflation rate was far more preferable to enduring a recession.

Today, the elevated inflation rate is due to a complex combination of factors. There are the “cost-push” factors: rising prices for rice and fish, as well as higher-than-expected oil prices. The BSP refers to the former factors as “food supply shocks.” The strong dollar has pushed down the peso’s exchange rate.

Then there is the surprisingly high consumer demand putting pressure on supply. The high demand is, in part, due to the larger disposable income brought about by reduction in the personal income tax rate.

Politicians who choose to blame TRAIN might want to clamor for the restoration of the old income tax rates – although that will not be politically profitable.

The higher-than-forecast inflation rate for August will have an unhealthy train of consequences.

Our economic managers have given up on hitting a real GDP growth rate of 7 percent. The real growth rate is arrived at by discounting the inflation rate from the nominal growth rate.

Everyone expects the BSP, whose main job is to manage the inflation rate, to attack liquidity more aggressively. This could mean raising policy rates even more, although the BSP says it is exploring non-monetary tools to fight inflation. Whatever the tools chosen, the net effect will be to moderate our growth rate.

Rapid economic expansion invariably creates inflationary pressures. If we want moderate inflation, we need to accept more moderate growth.

Budget Secretary Ben Diokno, in remarks yesterday, says inflation is the first problem we should tackle. That might imply a readiness to accept a lower growth rate.

Some business reports yesterday linked the decline of the stock market to the release of inflation figures. That link might be overstated. All the markets in the region declined yesterday, explained by uncertainties relating to the US-China tariff war and American sanctions against Iran.

If it is any consolation, many of the factors fueling an elevated inflation situation are transient. If we move quicker in shifting to tariffs for rice, this will bring down the inflation rate significantly. There are other things we can do about our food supply, although the remedial measures will require time.

The only thing certain is that our economic expansion will be tempered, perhaps into the medium term.

‘Illiterate’

Of all government workers, it is the public school teachers who have the highest propensity to borrow from lending institutions. The Philippine Institute for Development Studies (PIDS) estimates our public school teachers hold about P178 billion in debt to private lending institutions.

DepEd Secretary Leonor Briones offers a theory for the propensity of our schoolteachers to borrow. She says our teachers are financially illiterate and tend to use the money they borrow inefficiently.

On the basis of this theory, the DepEd, the BSP and the BDO Foundation have cooperated for a nationwide financial literacy program to educate our teachers on how to manage their personal finances better. If that fails to dent our teachers’ appetite for borrowing, the theory should be reviewed.

The DepEd is likewise asking the help of the GSIS to buy out the teachers’ loans from private lending institutions. This, again, is on the premise that the teachers are so utterly unwise they do not even know who to borrow from.

In furtherance of the DepEd’s hypothesis, they now want to tamper with the Automatic Payroll Deduction Scheme (APDS), giving repayment to the GSIS priority over other lenders. In the existing scheme, those loans incurred first get paid first.

The DepEd’s proposal to tamper with the APDS seems to overlook the fact that teachers go to private lenders because the process is simpler and the terms fair. The GSIS, after all, is heavily bureaucratic. The private lenders must be more nimble or they lose their clientele altogether.

In the existing APDS, private lending to the teachers is less risky and therefore financing charges are more affordable. That privileges teachers with prompt loans when emergencies arise. If the DepEd alters the first-come, first-served queue, this will raise the risk for private lenders leading to higher financing charges for the teachers.

Recently, the Teachers’ Dignity Coalition, representing 40,000 schoolteachers, wrote the DepEd to condemn the plan to tamper with the APDS. The letter reads: ‘We borrow money because of our needs, definitely not for luxury. We borrow money for our house rent, education, health and even our materials and supply for daily lessons and other essentials which the government failed to provide for us and our families.”

Maybe the theory that teachers borrow because of “financial illiteracy” is unduly harsh and inaccurate. The real reason for the propensity to seek financing could be that salaries are often paid monthly and many times delayed.

Rather than blame the teachers for “financial illiteracy,” perhaps the DepEd might try to make its bureaucracy a little more efficient.