The fallout from a faraway war

PHILIPPINES - In Brief 10 Mar 2022 by Romeo Bernardo

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Below updates are intended to give readers a better sense of how Russia’s invasion of Ukraine is affecting the local economy. Gas stations carried out this week their heftiest price increase so far this year, bringing gasoline prices about 20% above December 2021 levels. The upward adjustments will continue if world crude oil prices stay elevated or continue to rise. BSP Governor Benjamin Diokno told reporters that a worst-case scenario where oil prices are sustained at $120-140/bbl would push up the annual average inflation to 4.4% to 4.7%, above the monetary authority’s inflation target.[1] As of yesterday, Dubai crude oil, the BSP’s benchmark, was already above $122/bbl.However, the worst-case scenario for inflation will not be limited to oil prices. We earlier wrote[2] about other transmission channels, including food and feeds, other fuel inputs for electricity, a weaker currency and other second round impacts. Additionally, experts warn that high fertilizer prices that may cause farmers to reduce application could lead to lower crop production,[3] including rice, which will add to price pressures.Clamors for transport fare adjustments and suspension of oil taxes are rising. Economic managers appear resolute in granting neither. Instead, Finance Secretary Carlos Dominguez has agreed to double the budget for targeted subsides to key sectors, i.e., public utility vehicles and agriculture, which is deemed a more equitable solution. The overall package is estimated to cost government P6.1 billion,[4] a small sum compared with lawmakers’ proposal to suspend oil excises which over a six-month period would cost about P40 billion (0.2% of GDP).[5]Public finances, already ...