Cartel

There is good news and bad news in the latest inflation numbers reported by the PSA.

Inflation for the month of September logged in at 6.9 percent. That is about mid-range of forecasts and lower than the consensus of bank economists. They expected inflation rate for the month to hit 7 percent or more.

Core inflation was tracked much lower at about 4.5 percent. The headline number was driven by goods with volatile prices such as oil. We expect whole-year inflation at about 5.2 percent.

At the bottom line, we have elevated but not runaway inflation. Our inflation rate is lower than most of the countries we do trade with. This is, of course, no consolation for those stretching their wages to meet their basic needs.

Inflation is often defined as the pace the prices of goods rise. The other side of the coin is that it measures the speed with which purchasing power recedes. It is the latter definition that best describes the erosion of our people’s quality of life.

The most important driver of our inflation rate remains to be oil. Unfortunately, there appears to be little relief coming as far as this commodity is concerned.

In the previous weeks, oil prices began to decline. That made the world hopeful. But this week, we saw a surge in oil prices. After five weeks of rollbacks, we will likely see rising pump prices next week.

When oil prices were receding, analysts pointed to fears of recession and the economic slowdown in China due to its hardline pandemic policy. While oil prices were receding, it was possible to hope that the commodity will fall to below $80 per barrel. But global demand for fossil fuels remained constant.

The recent surge in oil prices, on the other hand, is attributed to plans by the OPEC countries to cut back on their production volumes to keep prices high. The exporting countries, quite pragmatically, would rather conserve their oil and keep prices at the highest possible level.

OPEC is unabashedly a cartel. Its very purpose for existence is to manipulate oil prices through coordinated supply decisions. In a few days, the OPEC will announce their decision on the matter of trimming supply. That decision will determine the inflation rates of all oil-importing countries.

Until the signals on oil pricing are clearer, it will not be possible to forecast how our own inflation rate will go. That is the extent to which OPEC affects our lives.

Historically, we have seen that oil price surges have eventually ended in global recession. In the face of a strong cartel, declining global demand for oil is the way oil prices could be pushed back.

OPEC is aware of this, of course. Its forthcoming supply decision will be carefully calibrated to get optimum prices for the commodity without pushing the whole world into a deep recession.

However, the best outcome of the shrewdest calculations of the oil exporters is to avoid recession but condemn most countries to a long period of stagflation: a condition where inflation runs rampant even as economies stand stagnant.

Under conditions of stagflation, unemployment and poverty rates hold constant even as inflation erodes purchasing power. From past experiences, we know stagflation could persist for a very long time and penalize the poor the most.

We want neither recession nor stagflation. But this is a matter completely out of our control. Like many times in the past, OPEC hold the world hostage to its whims.

Charade

Ukraine’s brave army is making a fool of Putin.

Last week, the Russian autocrat ordered referendums to be held in four Ukrainian regions. To no one’s surprise, the four regions were supposed to have voted overwhelmingly to be absorbed into Russia. Putin then went through the motions of annexing the four regions and getting his captive parliament to rubber stamp the act.

Just as he did all these, the Ukrainian army swept in and took the important logistics town of Lyman in the east. Before the retreating Russians could catch their breath, Kyiv’s army hit hard and fast in Kherson in Ukraine’s south. The speed and power of the counter-offensive makes it look like a blitzkrieg.

The only thing holding the Ukrainian troops from advancing much faster is their ability to set up supply lines for the fighting forces. The Russian frontline appears too demoralized to put up a fight.

Putin, expectedly, put the blame on his frontline generals. He forgot that since last month he has been giving orders directly to troops in Ukraine.

The autocrat’s flagging battlefield fortunes leave him with fewer options by the day. He has rattled his nuclear saber even more loudly of late. One report claims that Russia is moving a trainload of “tactical” nuclear weapons towards the border with Ukraine.

One hardline Putin loyalist claims there is now a 70 percent chance the Kremlin will order the use of these nuclear weapons. The western powers are taking the threat seriously and reportedly putting counter-measures in place.

Through all the excitement of shifting battlefield positions, we may overlook this fact: there is really no distinction between “tactical” and “strategic” nuclear weapons. Whatever the size of the weapons used, it will release a tremendous amount of radioactive material into the air. That material will be carried all over by the shifting winds.

It is doubtful if Putin will ever succumb to sanity. But the madman must be stopped.