Do we need a supplemental budget to cushion inflation upticks?


By Rose de la Cruz 

With the twin pressures of rising inflation—brought about by skyrocketing fuel prices abroad that is feared to reach $100 per barrel and a continuous weakening of the peso that would push the cost of borrowing money—there might be a need to create a supplemental budget to cushion these economic disruptions. 

This, as far as Rep. Michael Romero is concerned would force the country to adopt measures to prevent runaway inflation (as a result of pressures for higher wages, transport fares and utility costs). 

“Considering these developments, we ask the economic managers of the executive branch to update Congress on its strategies and tactics for heading off inflation over the next 12 to 18 months,” Romero said.

He also said he wants to know from the Departments of Social Welfare and Development, Health, Education, Commission on Higher Education and the Technical |Education and Skills Development Authority “what their social safety nets are for the possible or probable higher-than-forecast inflation.” 

“We may have to enact a supplemental budget and bills to amend specific provisions of the TRAIN (Tax Reform for Acceleration and Inclusion) Law. 

Crude oil prices in the world market seem to be heading toward $100 again. “We’ve all been there before and that lasted for about three years (2011 to 2013). While that develops, another rising trend line has emerged and this is the continuing depreciation of the peso against the dollar,” he noted. 

These two macroeconomic factors can complicate the country’s inflation conditions later this year and in the first half of 2019. 

Only last May 10, the Monetary Board of the Bangko Sentral “decided to increase the interest rate on the BSP’s overnight reverse repurchase (RRP) facility by 25 basis points to 3.25 percent. The interest rates on the overnight lending and deposit facilities were likewise raised accordingly.” 

These slightly higher rates make money more expensive and has the effect of reducing the appetite of the economy for more money, thereby reducing inflation pressures. 

The Monetary Board also said its own “latest forecasts have further shifted higher, indicating that inflation pressures could become more broad-based over the policy horizon.” 

If and when rising crude oil prices and peso depreciation influence what the Bangko Sentral said are “price pressures emanating from possible adjustments in transport fares, utility rates, and wages”, it is possible that we could have inflation ranging from 4 percent to under 5 percent over the next 12 months. 

Inflation last March and April was already at 4.3 percent and 4.5 percent respectively, according to the Bangko Sentral.

Congress needs the guidance from the executive branch very soon and hopefully before it adjourns the current session, so what is needed of us can be done sooner rather than later. If a special session of Congress is necessary, the House will consider its options.


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Thursday, 18 October 2018
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