Philippines Changes Inflation Calculation After CPI Shows Overheating Economy

When it comes to domestic or foreign policy problems, Rodrigo Duterte's Philippines usually has efficient, if often brutal, solutions. The same appears to apply to the economy as well, because just when the country's latest CPI print showed that the economy was overheating - which would force the central bank to hike rates, something it has long resisted - the country had a radical solution: change how CPI is calculated.

Overnight the Philippines reported that in February prices surged by 4.5% yoy, well above the central bank’s target range of 2% to 4% from 2018 to 2020. Core inflation also rose sharply to 4.4% yoy in February, from 3.9% yoy in January, with headline inflation momentum at 0.9% mom sa versus an already elevated 0.7% mom sa in January Rodrigo Duterte's tax reform program pushes up prices of key consumer items.

Inflation was driven higher by continued pass-through of higher excise taxes on sweetened beverages and tobacco under the new tax reform package, an increase in food prices on weather-related disruptions, higher fuel prices and the weaker PHP.

In short: a clear recipe for a rate hike one would say. Yes... but not the local central bank: Bangko Sentral ng Pilipinas has resisted pressure to tighten monetary policy even though inflation is accelerating and the economy is now clearly overheating.

Which is why the proposed solution was as ingenious as it was simple: alongside the "old" CPI series, the country's statistics office released a second CPI number which overhauled how inflation is measured. In a stroke of brilliance, the central banks switched from a 2006 to a 2012-base year, which meant that consumer prices rose only 3.9% in February from a year ago, and up from 3.4% in January, and well below the 4.5% print that the "old" print showed concurrently. More importantly, the 3.9% fell inside the bank's 2-4% inflation target band, removing the pressure to tighten.

Many were stunned by the glaring data manipulation: “I don’t agree that the new base year, which is lower than the reading for the old base, should be a cause to make an excuse for a no rate hike scenario,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “The reality is that the trajectory of inflation is going higher in both series.”

Yes, but not high enough, and not just yet. End result: the central bank bought at least a few more months of creeping inflation before it has to hike even though the majority of analysts expects it to raise the benchmark rate from a record-low 3% in March.

Meanwhile, the central bank is clearly unconcerned by the overheating economy, and is happy to keep the pedal to the metal: Governor Espenilla said the pick-up in inflation last month was in line with the central bank’s forecasts, and remains within the target for February and most likely in 2018 as well.

“Our forecast remains that inflation will decelerate back to well within target in 2019 whether based on 2006 or 2012 index,” he told Bloomberg. “Nonetheless, we will continue to closely monitor the developments and factor in all relevant data in our coming reviews of monetary policy stance.”

Well, yes: when you change the benchmark any time you don't like the result, of course the result will be in line with the target. However, what it really does is demonstrate what a whimsically arbitrary - and manipulated - concept inflation, and its CPI measurement, truly is.


Disgruntled Goat Bryan Tue, 03/06/2018 - 14:13 Permalink

If youre old enough to remember, the US used the same strategy in the 70s .... except the terminology was a little different : WHIP INFLATION NOW was the name of the campaign .... called WIN in order to have a nice catchy nickname .... red, white and blue buttons with the WIN logo were distributed all over the country, giving people the impression that they were responsible for inflation and could in fact defeat it themselves..... one of the biggest domestic propaganda programs there ever was .... in fact, Nixon had devalued the USD against gold two times, then proceded to abrogate Bretton Woods and stop USD/Gold convertability, all the while printing money to finance The Vietnam War, then attempting wage and price controls .... and claiming that they couldnt determine or stop the source of the inflation .... add the backdrop of the Arab Oil Embargo (for US support of Israel) causing gas shortages and increased gas prices .... really good times

In reply to by Bryan

Nelbev NugginFuts Tue, 03/06/2018 - 15:51 Permalink

The Fed does not calculate the CPI, it is the Bureau of Labor Statistics off survey data, but Fed can switch around its self-imposed inflation target check to watch anything it wants or ignore.  It would take an Act of Congress to change the automatic CPI adjustment for Cost of Living Increases, e.g. Social Security.

In reply to by NugginFuts

MusicIsYou Tue, 03/06/2018 - 11:45 Permalink

Mmm maybe country's economies are overheating because they ship things just to ship things. Like shipping table and chair parts from one country to another country to have it assembled and then shipped back (but I'm sure Mitch Mcconnel appreciates the shipping business), or like how the U.S ships shale oil abroad rather than refining it in the U.S.  But modern people are supposedly smarter than any time in history, haha.

slightlyskeptical MusicIsYou Tue, 03/06/2018 - 12:36 Permalink

The thing about globalization is that we ALL pay for it through higher energy costs. Higher energy costs make EVERYTHING more expensive. In the whole the US consumer saves nothing by having these 'cheap' goods come into our country.

No country that is capable of producing it's own goods should be able to import said goods from another country. If you can't produce it, then import it, but only what you can't produce yourself.

As for Trumps tariffs, i am against them because they are unilateral and do not consider the different costs from different souces which is needed to equalize pricing to domestically manufactured goods. .

In reply to by MusicIsYou

wmbz Tue, 03/06/2018 - 11:48 Permalink

"Many were stunned by the glaring data manipulation"

WTH? Please, meet the grand master of "data manipulation"....USA,USA,USA!

MusicIsYou Tue, 03/06/2018 - 11:58 Permalink

I think I'm going to get into making carpet. Then I'm going to ship it to China so they can roll it up. And then it'll get shipped to Australia to be rolled the other way. Then ship it to Canada to have it unrolled, and shipped back into the U.S to sell it as "Twice Rolled Carpet."

teharr Tue, 03/06/2018 - 12:02 Permalink

You know what they say, imitation is the most sincere form of flattery.  All he needs to do now is start lying about the unemployment rate and we have ourselves a winner.

US Government to express outrage in 3,2,1....

Isn't this the guy that called Obama a homo?  Oh wait, does he lie or tell the truth?  I am so confused.

HelloSpencer Tue, 03/06/2018 - 12:18 Permalink

Just make sure you go back in time and - within your own fraudulent Keynesian world and based on the new inflation calculation - determine how often you applied monetary policy incorrectly.


Zepper Tue, 03/06/2018 - 12:20 Permalink

Duterte is the best leader Philippines has had in a very long time. He sees a drug dealer and instead of putting his ass in jail at the expense of the government he just kills him. DONE! That saved 40k a year. Could you imagine how much money we would save if we did the same thing... of course it would be called genocide because the majority of the drug dealers are black.

gaoptimize Tue, 03/06/2018 - 12:30 Permalink

OT: I just accused Brennan of being a creepy crypto-Muslim at Gateway Pundit Disqus comments and was auto-banned immediately.  That is the 2nd site that has done this.  Soon, Zerohedge will be the only site I'll be able to post at.

The irony of this is I defended Jim Hoft's free speech at the APP booth at C-PAC.  It may be time for me to shut up and prep.