May 5th, 2022
Evidently, supply chain disruptions and higher input costs almost across the board will continue to cause higher prices, and I expect little if any let up in the coming months.
The Ukraine crisis will continue to impact the prices of bread, fuel, and even fertilizers due to its proximity with Belarus, a leading source of fertilizer ingredients.
Palm Oil supply issues will also persist, likely into June, with implications on cooked products as well as animal feed.
These price pressures will drive up inflation expectations among investors. That may result in higher borrowing costs for the government and higher profitability hurdle rates for businessmen. Combined, these downward pulls on private and government spending could have implications on jobs growth and recovery.
This is why, on May 9, we should elect leaders who can competently handle both inflation and growth challenges. Necessarily, they must inspire investor confidence, be well advised by an experienced and competent team, and have enough popular mandate to enact needed changes.
The priorities of the next Congress must also be both medium term and structural changes to resolve the food security challenges that make us so vulnerable to food and fuel price developments abroad.
In the meantime, immediate and timely relief through the distribution of the promised 500 peso monthly ayuda by the government is urgent.
I also urge the BSP to weigh carefully pulling our easy monetary policy back. Prudent and gradual increases in our interest rates must be coupled with measures to encourage high quality lending to growth-creating industries. We must sap excess liquidity without stifling growth sectors.
I will brief the next President, whomever they may be, about what I believe are necessary steps forward. Make no mistake- we are in danger of getting caught in a low-growth, high-inflation bind. Though still a remote possibility, it will become more real if the next administration makes early mistakes.