Oil Price Shocks and Other Midyear Prognostications

Here are my forecasts for the next half of 2008, and I feel gloomy just thinking about most of them.

1. More Oil Price Increases — a worldwide trend with no let-up in sight. I get a fever every time I go to the gas station. Unleaded is now P60.00 plus per liter at the pump and rising weekly. Crude hit a new record high of U.S.$ 143/barrel and keeps climbing. It will get worse in the last quarter as winter approaches. I fear we will hit the nightmare scenario of U.S. $ 200.00/barrel sooner than predicted.

2. Food prices and other basic commodities will increase – a no- brainer. The effect of rising energy costs, combined with other factors like increased demand and diminished production, will drive up the inflation rate, which in Metro Manila has reached double digits. Expectedly, food will exhibit the steepest price increase. The negative impact on overall income due to inflation will naturally lead to a drop in personal consumption. Which will in turn slow down the economy etc., etc. ad nauseum.

3. The crime rate will rise — another no-brainer. Crime, particularly violent ones against persons and property, is sure to shoot up, as prices escalate, people lose jobs due to cut-backs and a general slowing down of the economy and public services and government subsidies shrink. Expect more bank robberies and other vicious crimes as the year-end holiday season approaches. People are hungry and desperate.

4. Inward remittances will drop – Wage remittances from OFWs will likewise fall. The host economies of Filipinos abroad are also facing hard times and employment opportunities will be affected. I just hope this negative trend will be offset by the projected growth in the domestic services sector.

5. The Peso will continue to depreciate against the U.S. Dollar — A direct result of the rise in oil prices, as the demand for dollars will likewise increase. The silver lining is that our exports will become more attractive to outside buyers. Also, the monetary value of OFW remittances will appreciate.

6. GMA will stay in power — The anti-GMA forces are spent and in survival mode, just like the rest of us. Everyone is just trying to stay alive. The continuing series of crises and national disasters, both natural and man-made, has played into Mrs. Arroyo’s hands, as it has stalled the momentum of the oust-Arroyo movement. The opposition is also in disarray, with presidential hopefuls and other pols already jockeying for position in 2010, and paying less attention to issues against Malacañang.

7. Manny Pacquio will kick another opponent’s butt before the end of the year — Make hay while the sun shines, as the old saying goes. He will likely go against Edwin Valero or Ricky Hatton, probably the former, for an easier time. Valero, according to boxing pundits, is even slower than David Diaz despite his formidable record (24 wins, all by knockouts) . The only problem for Pacquiao would be going back to the 130-lb. super featherweight class. As he has shown in thrashing Diaz, he’s quite comfortable as a lightweight.

I’d be very glad to be proven wrong, except for the one about Pacquiao.

As former NEDA director Cielito Habito says, the year is only half way through, and unfortunately, things aren’t exactly looking up. Hold on to your belt; it may need a little more tightening.

Oil prices hit new peak above US$ 145.00 a barrel.

The inflation rate hit 11.4 percent in June from a year earlier–the fastest rate recorded in 14 years–due largely to the substantial increase in the cost of rice and other food products, the National Statistics Office reported.

“June inflation rose to a double-digit on account of the unprecedented jump in world oil prices,” Governor Amando Tetangco Jr. of the central bank, Bangko Sentral ng Pilipinas (BSP), told reporters. “As a result, domestic pump price increases triggered large price buildup across wide commodities and services groups.”

The June inflation rate exceeded the BSP forecast of 10.4-11.2 percent and the 9.5 percent recorded in May.

The Catholic Bishops’ Conference of the Philippines sees a tide of bitterness and unrest rising among the poor.

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