Salceda, who was among the first to warn of the possible crisis early this year, said the country “is not there yet” but advised government to act fast using the “inflation tool kit” to save the economy.
Stagflation or stagnant economic output and rising inflation can be avoided with quick but right government actions focused on the agriculture sector, the lawmaker said. He said there is a need to move fast on the vaccine rollout to hasten economic recovery.
“I don’t think we’re in a stagflation just yet. You have to remember that low growth in the country is not due to some cyclical reasons or some commodity shock, but because of COVID-19 alone. We have to accelerate the vaccine rollout for sure so we can return to more normal levels of output,” he said.
“With the economy still in recession and millions of Filipinos still looking for jobs, the recent spike in inflation in January sounded off an alarm for a possible stagflation,” Salceda said.
Stagflation involves both stagnation [economic contraction and unemployment] and inflation. The Philippine Statistics Authority reported a 9.5-percent gross domestic product contraction in 2020 and 4.2 percent inflation in January, up from 3.5 percent in December.
The Bangko Sentral ng Pilipinas set an inflation target of 2 percent to 4 percent for 2021 to 2022, but economists said a relative price shock in an important sector, such as food, could spill over to other sectors and become a problem of general inflation.
“It’s a problem for economic policymakers because the usual levers of fiscal and monetary policy have tradeoffs. For example, if we lower interest rates to enable growth, we also help accelerate price increases. If you have these three problems happening in scale all at the same time, you are in a bind as a policymaker,” Salceda said.
Salceda, a noted economist, said the government should spend more, especially for cash aid to farmers, hog raisers and livestock producers so that supply shocks are addressed. The Department of Agriculture’s flagship project “Plant, Plant, Plant” should also be implemented quickly,” he said.
“One government program that could address these three problems all at the same time is the rapid implementation of ‘Plant, Plant, Plant.’ You will remember that last month, I already warned the government that prices may hit us hard, so we have to invest in food supply. Investments in agriculture create jobs, improve output, and lower price pressures. It is one of those rare economic instruments that achieve all three,” said Salceda.
“I would remind them [government officials], however, that aggregate numbers do not always reflect the extent of misery of those whose means fall below the average,” he said.
Salceda said that while good aggregate numbers work in business, “we in policymaking have a responsibility to protect those whose misery the numbers may obscure. Inflation, unemployment and low growth definitely hit the poor harder, so we must always take not the aggregate or average view, but the view of the vulnerable.”
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