Inflation and elections

The increasing government actions on inflation in the Philippines are also due to the coming May 2022 election. Aside from the concerns of the impact of rising prices on the Filipinos battered by the COVID-19 pandemic and the typhoons, the state of the economy and specifically the rate of inflation will affect the supported candidates of the outgoing administration. The recent government pronouncement of the Philippines importing 60,000 tons of “galunggong” fish from China to stave off the price of fish from escalating by April, is clearly also a political move. That the fishing industry and some senators and congressmen are opposing the move, as it is bad for the fishing sector and that these fishes may even come from the territorial waters of the Philippines encroached by China, is an acceptable risk for this government, as a big increase in the price of fish together with a hefty increase in the fuel prices in April will negatively affect the candidates of the outgoing government.

Managing the economy is an intrinsic part of governments, so the responsibility of controlling inflation is mainly with the government. We have earlier defined inflation as price increases that decrease the purchasing power of money, and this is caused by demand-pull and/or cost-push. While the Banko Sentral ng Pilipinas (BSP), or Central banks all over the world as quasi-independent bodies, they are really still part of the government. The mandate of all Central Banks is to maintain price stability in the economy and preserve the stability of the financial system. Most of the time, governments allow their Central Banks to make monetary policies and regulate financial institutions without much interference. But when the political survival of the government is at stake, authoritarian politicians intervene by over borrowing from the Central Banks to cover budget deficits, infusing more liquidity (printing money), and using the Central Banks gold and foreign currency resources. These happened in the Marcos years and looks like it is happening in Turkey now, as Erdogan does not want to step down as president for a long time.

Under normal conditions when inflation rate is minimal at the 1% to 2%, the fiscal side of the government manages the inflation by keeping budget deficits at levels that are affordable by subsequent incoming revenues from taxes, custom duties, and other revenue sources. Governments also provide the environment, regulations, and the infrastructures that make businesses and production grow and become more efficient, minimizing the cost factor in the production/delivery of goods, including reducing graft and corruption that is added to production cost. The minimal inflation is even used as a signal of increasing demand for producers to increase production, thereby growing the economy.

Even without the election, 2022 will be a critical year for the Philippines as it is the recovery year from the pandemic and the disasters. The objective is to grow back the economy while avoiding inflation and other stresses in the economy. It is the time that the government should be most effective and efficient. All the countries in the world will be in varying degrees of recovery while contending with the never-ending geopolitical problems in Eastern Europe, the Middle East, the Korean Peninsula, and the South China Sea. The environmental degradations and the consequent problems are also looming and needing coordinated global solutions. All these challenging situations will be facing the next government, so we really need leaders who are capable and focused for the good of the country and the people. Good government is good economics.