Tsunami

We must be bracing for a tsunami of price increases, led by more expensive oil and minerals.

Over the next few weeks, the impact of the price increases will bear on the consumer. Meralco announced an increase in power prices this month. Prices for fish and vegetables rose sharply the past few days owing to higher fuel costs. Oil prices will continue their upward march next week.

Our inflation rate for February was benign. But the rate for March will not be. The global markets for oil and commodities have been turbulent for two weeks now, since Russia invaded Ukraine.

Inflation is now a global disease.

In the US, the Consumer Price Index shows an inflation rate of 7.9 percent in the 12-month period ending February. This is the highest rate since 1981 even as it does not yet reflect the recent price turbulence in the oil and commodities markets. Economists expect US inflation rate to reach 8.6 percent at the end of this month.

According to a leading American bank, credit card spending rose by about 15.7 percent over the last month. Credit card default is one of the vulnerabilities of the US financial system.

As the Russian ruble quickly loses its exchange value as a reaction to the sanctions, a second generation of problems now present themselves. European banks holding large Russian assets could run into trouble. Russian debt has now been downgraded to junk.

As the war in Ukraine continues, the volatility in global markets could become more severe. Oil prices are indicative, especially after the OPEC announced they have no plans of dramatically increasing their output.

Americans are now paying the highest price for gasoline. It is bound to go higher.

In our case, the Department of Energy advised consumers to prepare to pay a hundred pesos per liter for gas. That is a shuddering thought. But given the behavior of the oil markets the past few days, that price level is not unlikely.

The price of fuel is the trigger for domino effects on all sectors of the economy. Right now, the dominos are only beginning to fall.

Candidate Manny Pacquiao faults our government for failing to stock up on oil. Assuming we had both the money and the clairvoyance to hoard oil, the candidate does not tell us where we might be able to store the commodity to ride out this turbulence.

The specter of rising oil prices induces a lot of demented thinking about the precious commodity.

One so-called consumer advocate is demanding that the purchase dates of oil being sold at the pumps be audited to ensure the product is sold according to price on the date of purchase. The practice has always been to sell the product at replacement cost.

When, at the onset of the pandemic, oil prices fell through the floor, our oil companies lost billions in inventory costs. They had purchased oil when the product was priced higher and sold the product when the price was down. Selling at replacement cost is the rule of the market.

Every politician on every stage today wants to suspend the taxes on oil. This is the popular thing to say but doing so will give only miniscule relief. But it will torpedo our fiscal position and force us into debt eventually. If we go by populist whim, our future is compromised.

The most unthinking but no less popular proposal is to bring back the Oil Price Stabilization Fund (OPSF) and renationalize the oil industry. Let us not forget that the OPSF was among the main causes the country went bankrupt before. The OPSF politicizes oil pricing and eventually forces government to subsidize a commodity consumed more by the rich.

When oil is subsidized either indirectly through withdrawal of the usual taxes or directly through funding for the OPSF, we give consumers the wrong price signals. Priced incorrectly, oil is consumed imprudently.

The current oil price regime will make life very difficult for all of us. But by masking real costs (at public expense eventually), we will only make things worse down the road.

No one knows what the oil price ceiling is. It is our misfortune that Russia is a major source of this precious commodity. Absent oil deliveries from Russia, market forces will jack up prices.

The longer the invasion of Ukraine continues, the higher oil prices will be. We are only at the beginning of what could be a long pricing cycle. But we cannot afford to let Putin win. This will only encourage him to engage in more aggressive behavior in the future.

At the moment, there is no foreseeable end to the conflict in Ukraine. The Russian war machine is bogged down by the unexpected tenacity of Ukrainian resistance.

Putin will never admit his invasion was a mistake. He will not allow the ignominy of pulling his forces out. All the diplomatic efforts attempted the past week, including a high level meeting between the Russian foreign minister and his Ukrainian counterpart, have been fruitless.

As Putin asserts his will over a country he can never govern, the conflict will be even bloodier. Ukraine has taken a high toll in civilian lives and devastated cities as the invading Russian army recklessly bomb population centers. But Kiev will resist until it becomes impossible to do so.

The sanctions, as I pointed out in earlier columns, will cut both ways. This has become a contest on who will be able to endure pain better.