I am sharing the views on the May 2014 inflation figures of an economist who I regard in high esteem: Why Inflation is Accelerating? Its not due to the demand side--money growth. Its basically due to the supply side—mainly food and fuel/energy prices. If we look at core inflation (which excludes food and energy prices), the May figure stood at 3.1%. This has is not too far from 2.8% six months ago (November 2014), which confirms the earlier statement. But between the two—food and fuel/energy prices-- it is rising food costs that has taken the big lead. From 2.5% food inflation in September 2013, this has risen to 6.7% in May 2014 (or a 4.2% points increase). On the other hand, fuel/electricity prices have moved up to 3.7% in the latest reading compared to 1.5% also in September last year (or a 2.2% ascent). Note that in both the total rate and the acceleration, it has been food prices that clearly is primarily driving the inflation, since the fuel/electricity inflation has been below the headline inflation rate of 4.5% in May 2014. There are two major factors in progressively higher food prices, and they are more man-made rather weather-related. Therefore, the solutions can be fairly straightforward and quickly implementable. The continuing increase in rice prices has been the major driver of food prices. After all, by May 2014, rice cost 12.9% more than a year ago. I say this is man-made because the administrations hubris made itself believe that there was going to be rice sufficiency. Really? By April 1, 2014, the Bureau of Agricultural Statistics says that rice inventory in the country was equivalent to 64 days of consumption. This is way below the 90 days usual inventory benchmark. By not importing early enough, consumers are being made to pay much more for rice. The solution, therefore, apart from a more medium-term of boosting productivity in rice output, is simply to import rice and soon. The big jump in food prices in May 2014 was broad-based and not only due to rice. This leads us to the second cause of the problem—the overly restrictive truck ban in Manila. My sources say that instead of an average 3 trips to the port area, trucks now average less than 2 trips per day due to the ban. This not only creates container congestion in the piers, but also a worsening situation because the rate of outflow of containers is much slower than rate of its inflow. Manila Bay apparently now has more idle vessels waiting to unload their cargo/containers. All of these have added to the cost and efficiency of logistics that has hit the first line of products—other food items. This man-made crisis can also be solved rather easily. Manila officials should realize that the national interest should prevail over their concerns, even though they may be legitimate.
Posted on: Sat, 07 Jun 2014 05:04:56 +0000
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