Inflation, El Niño and a pesky neighbor

The Bangko Sentral ng Pilipinas (BSP) did what it had to do on Thursday. It raised the benchmark rate by 50 basis points to 5.50 percent in its fourth hike this year, against inflation of 7.2 percent and the peso at a record low.

But we should be honest about what this medicine can and cannot do.

Interest rates work on demand. They make loans costlier, cool spending, and anchor expectations. They do nothing about the jeepney fare, a Meralco bill, or the price of rice after a drought. Most of what is hurting Filipino households is supply-driven: oil, transport, electricity, and soon El Niño.

The BSP is right to prevent a wage-price spiral, since core inflation at 4.7 percent shows the pressure spreading. Yet the central bank can only slow the fire’s spread. It cannot put it out.

What happens to ordinary people? In simple terms, the squeeze deepens before it eases. Fare hikes were barely captured in September’s data and will show up in October. Meralco’s higher distribution rate arrives in November.

Loans for homes, motorcycles, and small shops become costlier. Rents, already more than a tenth of the consumer basket, will not fall. Families will cut quality before quantity: less fish and meat, more instant noodles, children pulled from after-school activities, emergency savings gone.

Will people become penurious? Will people die of hunger? Some will become poorer, yes, especially the informal workers, farmers, tricycle drivers and small vendors who cannot pass costs on.

Mass starvation is not the likely outcome of a country with this much institutional capacity. But hunger, as distinct from famine, is a real risk: skipped meals, stunted children, and a deepening of malnutrition that shows up in classrooms years later. That is a policy failure we can still avoid, and avoiding it is a matter of competence, not luck.

What must government do? Protect the food supply before El Niño bites. That means planning timely rice and corn importation, building up buffer stocks, cracking down on hoarding and cartel behavior, and doing the unglamorous work of fixing cold-chain and farm-to-market bottlenecks.

Imports must be timed to shield consumers without crushing farmers at harvest. Target relief precisely. Broad subsidies are costly and leaky. Expanded cash transfers through existing databases, fare discounts for commuters, and fuel support for drivers and fisherfolk can reach those who need help without feeding inflation further.

Get fiscal and monetary policy pulling in the same direction. The BSP is tightening up, so Congress and the Executive cannot spend as if nothing is happening. That means cleaning up spending, with infrastructure money properly accounted for, and no budget padding while families skip meals. Credibility is itself an anti-inflation tool.

Prepare the power supply for a dry season. Electricity inflation is already 14.6 percent. Another supply shock would compound everything else.

Some observers say this could be an opportune time for Beijing to swoop in and take further advantage of the country’s vulnerabilities. It wouldn’t be hard to imagine that a distracted, financially stretched government would have fewer resources for Coast Guard operations, resupply missions, and maritime domain awareness.

A hungry public is also less patient with defense spending, and Beijing knows it.

It would be wise, perhaps, for the government not to choose between bread and sovereignty. A government that feeds its people and keeps its books honest will find it easier to defend its waters. Public trust is a strategic asset.

The next year will test whether the Philippines can manage a cost-of-living crisis, a climate shock, and a coercive neighbor at once. Rate hikes are one tool. The rest is governance.