In 2023, the man of the hour—and possibly, the hero of the year—is our central banker, Bangko Sentral ng Pilipinas Governor Felipe Manguiat Medalla, 73, a veteran economist and a committed public servant all his professional life.
Medalla was dean of the UP School of Economics which produced most of the Philippines’ economic planners.
He took his economics and accounting from La Salle Manila, and his MA in economics from UP. He has a Ph.D. in economics from Northwestern University, Illinois.
He served as economic planning secretary of President Joseph Estrada who inherited a recession and licked it in his first three months. Medalla became BSP governor on June 30, 2022.
BSP says its main responsibility is to formulate and implement policy in the areas of money, banking and credit with the primary objective of preserving price stability.
Price stability refers to a condition of low and stable inflation. By keeping price stable, the BSP helps ensure strong and sustainable economic growth and better living standards.
As the chief monetary authority, Medalla’s main job thus is fighting inflation, the bane of every Filipino and of every businessman worth his salt.
To fight inflation, Medalla has resorted to something drastic – raising interest rates.
Accordingly, in less than a year, the BSP CEO more than doubled the interest rate banks pay for borrowing money from the central bank overnight, from 2 percent in February 2022 to 5.5 percent by December.
The job is not done yet. More rate increases are due.
According to ING, BSP expects inflation to settle at 5.8 percent in 2022 while 2023 inflation is now forecast to average 4.5 percent (from 4.3 percent).
ING’s chief economist Nicholas Mapa “expects inflation to stay elevated well into 2023 given the prevalence of second-order effects, or price increases driven by the initial energy price shock.
With inflation expected to stay high, we believe BSP will retain its hawkish stance going into 2023, taking its cue mainly from the Fed while also monitoring the path of inflation.”
Mapa expects “the BSP to bring its policy rate to as high as 6.0-6.25 percent this year, although recent comments from Medalla suggest that he is open to a potential ‘BSP pivot’ sometime in the second half of 2023.”
Interest rate is the price you pay for money.
If the price is high, you lessen the demand for money. With less money, a consumer buys less, because his demand is dampened. With less demand for goods, the rise in prices of such goods slows down.
That is the theory.
The rate of an increase or decrease in prices is called inflation. Inflation is the biggest enemy of poverty. It cuts or reduces the purchasing power of one’s income.
If a year ago, you had 100 pesos and the price of goods you buy with the 100 rises by 8 percent, this year, then your purchasing power is reduced to just 92. The 100 pesos you had a year ago is now worth only 92, thanks to 8 percent inflation.
Imagine if with your 100 pesos a year ago you could buy two kilos (2,000 grams) of rice, at P50 per kilo.
But the price of rice goes up by 8 percent, to P54. That means with the same 100 pesos, you can buy only less than two kilos, or just 1.84 kilos or 1,840 grams – 160 grams less.
On average, a Filipino eats 320 grams of rice a day. So a reduction of 160 grams, because of an 8 percent inflation, means missing half of your meal in one day.
If the 8 percent inflation persists for one year, you will be eating only half of your daily meal requirement each day for 365 days. That’s bad. You will feel bad.
You will hate your government. Or at least blame somebody for that somebody having messed up your daily meal because there is not enough rice while demand is constant or rising so that the cereal’s price has to increase to dampen demand.
That is exactly what is happening in most places in the Philippines today.
Food is 50 percent of a poor man’s daily expenditures; 50 of every 100 pesos, daily. Of that 50, P15 is allotted for rice, which unhappily is in short supply.
Not surprisingly, in September 2022, respected pollster Pulse Asia found out that most Filipino adults (66 percent) are concerned about the soaring prices of basic commodities; public concern regarding this matter became more pronounced between June 2022 and September 2022 (+9 percentage points).
Amidst the continuing increase in the prices of basic goods, 66 of every 100 Filipinos say controlling inflation is issue No. 1 for the administration of President Marcos Jr.
This view is widespread, in all geographic areas (56 percent to 81 percent of people surveyed), and all income classes (51 percent to 71 percent).
Accordingly, almost half of Filipino adults cite increasing workers’ pay as an urgent national concern (44 percent) while around a third of them are concerned about job creation and poverty reduction (35 percent and 34 percent, respectively).
A companion problem is corruption.
Filipinos are irritated that a government that cannot control inflation also cannot control corruption.
“Nearly a quarter of Filipino adults (22 percent) say the present dispensation should immediately take steps to combat corruption in government,” says the Pulse Asia September 2022 survey.
So there, when inflation is high and corruption is rampant, you have what you call misery.
Misery, of course, is a precursor to outrage.