IN January 2015 the headline of a Fortune magazine article read, “The world’s biggest winners and losers from cheap oil, in one chart.” Oh, those were certainly great times as evidenced by the opening sentence: “The Philippines is going to crush it.”
The projection was that the Philippines would have the most benefit of all the nations on planet Earth, with low oil prices raising economic growth by nearly 2 percent for the year. Granted, the 17-page spreadsheet authored by Oxford Economics did say that oil would have to move below $40 per barrel. At that time, crude oil was trading at $50, having come down from $100 the previous June 2014.
By December 2014, the price of oil did move to below $40, hitting a low on January 10 at less than $29. However, since that low, oil prices have moved steadily higher and broke above $40 two months ago. Now the oil price is bumping around $50 a barrel, up 25 percent from the $40 key price and more than 70 percent from the 2016 low.
While it is virtually impossible to calculate accurately, it is probable that the low price of oil added to the first-quarter Philippine economic-growth numbers. The question now is, what will happen with oil trading at $50?
American Benjamin Franklin said there were only two things certain in life: Death and taxes. He might have added that Philippine economic growth runs opposite to the inflation rate; more inflation equals less economic growth and vice versa.
While there may be a time lag between the turning points of the Philippine inflation rate and turning points of economic growth, the correlation is more than coincidental. You can chart the pattern back 50 years. Peak inflation in 1975 came as the country experienced an economic growth low. That happened again in 1983 and 1992.
More recent turning points, both positive and negative, for economic growth occurred in 2005, 2007, 2009 and 2014.
The reason that the Philippines was to benefit so greatly from low oil prices is that our inflation rate is most dependent on oil prices—the lifeblood of all economies—than the other countries. Oil prices do not have government subsidies and everything ultimate runs on oil prices.
Now we correlate Philippine inflation and oil price turning points. These came recently in 2005, 2007, 2009 and 2014.
The average retail price of unleaded gasoline in Metro Manila as reported by the Department of Energy has tracked this path. January 19, P37.10; February 16, P34.85; April 12, P38.30; and May 24, P41.20. Gasoline is up 18 percent from the February low. That is the potential inflation and the potential problem for economic growth.
Image credits: Jimbo Albano