Inflationary

If I remember correctly, inflation hit 6.4% in March this year, and we're seeing even tougher estimates ranging from 8-9% for April. Last year, we were able to sail through the US$100 dollar per barrel environment due to a weakening dollar and a surge in OFW remittances. Inflation was effectively tamed at manageable levels.

This time, however, tight supply conditions of major commodities such as rice and wheat have put pressure on inflation to rise even further. This is different with, say inflation arising from excess liquidity due to a surge in remittances, or due to drastic hikes in wages, because a simple mopping-up operation of excess liquidity in the system cannot solve the problem: supply shortages have to be addressed and dealt with because simple manipulation of interest rates and adjusting banks' reserve requirements cannot do the trick

Wages will likely rise as well, which means cost of production will increase and thus, a general increase in prices passed on to end-consumers will be observed, creating an inflation cycle.

In a high-inflation environment, consumption will likely slow down, and the ensuing high interest rates charged by banks (banks will want to earn more to maintain their margins) in general is not good for business since the cost of borrowing will rise.

As the government tries to monitor the commodity supply conditions, it has to ensure that interest rates do not spiral out of control. We have to thank again the OFWs for keeping the peso strong vis-a-vis the greenback, otherwise we won't have any buffer against the onslaught of high oil prices.