Runaway inflation in other countries

posted September 05, 2018 at 08:50 pm
by  Ray S. Eñano
 The inflation rate in the Philippines is a real concern after surging to a nine-year high of 6.7 percent in August from 5.7 percent in July. Soaring prices of rice, fish and other food products are driving the inflation rate and it could further act up if it remains unchecked.

The August inflation rate was the fastest since hitting 6.6 percent in March 2009 and topped the estimates of government and private sector economists. It brought average inflation in the first eight months to 4.73 percent, or above the government’s official target range of 2 percent to 4 percent for the year.

The inflation rate story in the Philippines, however, is not that alarming yet compared with prices in Venezuela, Turkey and Argentina. Venezuela’s central bank has stopped releasing the nation’s inflation data but its opposition-dominated legislature put the figure at 46,305 percent.

The International Monetary Fund says Venezuela’s inflation could hit one million percent this year because of unsound economic policies like the printing of more money, unsustainable state subsidies and series of wage increases.

“We are projecting a surge in inflation to 1,000,000 percent by end-2018 to signal that the situation in Venezuela is similar to that in Germany in 1923 or Zimbabwe in the late 2000’s,” wrote Alejandro Werner, director of the IMF Western Hemisphere department, in a post on the agency’s blog on July 23, 2018.

“The collapse in economic activity, hyperinflation, and increasing deterioration in the provision of public goods (health care, electricity, water, transportation, and security) as well as shortages of food at subsidized prices have resulted in large migration flows, which will lead to intensifying spillover effects on neighboring countries,” Weiner adds.

Argentina is in no better shape either. The inflation rate reached 31.2 percent in July after averaging 25.68 percent in 2017. The peso, according to Agence France Presse,  has lost half its value against the dollar this year, hampering government efforts to get inflation under control. Argentina is in talks with the International Monetary Fund to secure an accelerated disbursement of a $50-billion loan in an attempt to get out of the economic crisis.

The inflation rate in Turkey hit a 15-year high of 17.9 percent in August as the Turkish lira lost around 40 percent of its value against the US dollar so far this year. The weak lira increased the cost of basic goods after President Recep Tayyip Erdogan’s questionable monetary policy and a worsening diplomatic feud with the US.

Electricity rates still stable

Stable electricity rates, meanwhile, are sparing Filipino consumers amid the high food prices, especially of rice. Manila Electric Co. raised its rates in August by just P0.0265 per kilowatt-hour. 

While prices of other common goods and services continue to increase, the electricity rate is going against the tide. A recent study conducted by the International Energy Consultants among 46 countries, including Philippines, affirmed the trend. The study says power rates in Metro Manila, especially within Meralco’s franchise area, have shown significant decrease while other goods and services demonstrated large increases in the past six years. Meralco’s average tariff in 2018 is lower by 18.2 percent compared to that of 2016.

The August rate of P10.22 per kwh, moreover, is actually lower than the tariff in January 2016, when it stood at P10.67 per kwh. The rate belies the recent protest action of a militant organization at one of Meralco’s business centers. Misinformed consumer groups are protesting what they call Meralco’s “exorbitant power rates.” They fail to understand the reality that although Meralco distributes electricity across its franchise area, it doesn’t have the power to control the rates.

The Distribution Charge which accrues to Meralco only makes up 17 percent of the total bill and it is the only charge that goes directly to Meralco as revenue. All other charges are pass-through and are only collected by Meralco for other billers.

The distribution charge has not changed since July 2015. It has actually decreased and remained unchanged for the past three years. 

The upward or downward movement of the electricity rates in the country is triggered by two main factors. First, the value of peso against US dollar influences electricity rates since a large part of generators’ cost are denominated in dollars. The generation charge, on the other hand, represents about 55 percent of the total bill that consumers pay monthly. The generation charge and the exchange rate movement are beyond the control of any distribution utility.

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Topics: Inflation , Alejandro Werner , International Monetary Fund , Economy , Manila Electric Co , Distribution Charge
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