COVID-19 supply chain disruptions could spoil gains from free fall of oil prices—economists

Severely depressed oil prices in the world market were likely to benefit the Philippines in the long run but its near-term impact on domestic consumer prices may be offset by supply chain disruptions caused by the ongoing COVID-19 lockdown, according to economists.

“Our country is not an exporter, so definitely we don’t suffer—we are an importer (of oil),” said acting Socioeconomic Planning Secretary Karl Kendrick T. Chua at a press conference via the teleconferencing app Zoom on Tuesday (April 21).

“Actually we benefit from this lower oil price,” he said. “But as you know it does signal that demand is really very weak in the whole world, that’s why prices fell,” Chua said.

“We are definitely a net beneficiary of this,” added Chua, who heads the state planning agency National Economic and Development Authority (Neda).

Global oil prices dropped below zero for the first time as demand worldwide crashed when the COVID-19 pandemic paralyzed economies around the world.

But Ateneo de Manila University Economics Prof. Alvin P. Ang told the Inquirer that even last March, when oil prices were already falling, headline inflation was still above 2 percent “so falling oil prices might not necessarily lead to a faster fall in general prices.”

The rate of increase in prices of basic commodities last month, 2.5 percent, was the lowest in the first three months of 2020, as transportation costs declined.

“The March inflation print showed that despite deflation in transport costs, inflation still topped expectations because of the jump in food prices,” ING Bank Philippines senior economist Nicholas Antonio T. Mapa told the Inquirer.

Prices of food and non-alcoholic beverages increased by a faster 2.6 percent year-on-year in March as the enhanced community quarantine took effect in the middle of the month.

“I’ve always maintained that headline inflation is largely driven by the food basket and, to a lesser extent, transport items,” Mapa said.

Ang and Mapa shared the view that global and local supply chain disruptions caused by the lockdowns would most likely offset the impact of a nosedive of oil prices.

“Widespread containment measures are crippling domestic consumption and production,” said Moody’s Investors Service assistant vice president Deborah Tan in a report last Tuesday.

This, Tan’s report said, “is spilling over to other parts of the region in the form of lower demand for commodities, imported goods and services and supply chain disruptions.”

But Rizal Commercial Banking Corp. (RCBC) chief economist Michael L. Ricafort, said he still sees the sharp decline in oil prices overshadowing “other offsetting factors” like increases in food and basic commodity prices because of the lockdown.

Ricafort told the Inquirer that the past one to two months showed a “consistent” bigger impact on domestic inflation of depressed oil prices.

“We should see huge rollbacks in local fuel pump prices,” Ricafort added.

Security Bank chief economist Robert Dan J. Roces told the Inquirer that low global oil prices and supply disruptions “offset each other.”

“There is a possibility of supply shock, although we have yet to experience spikes. In any case, oil price slump will pull down” inflation,” Roces said.

As such, oil “will have slightly greater impact” in the long-run, Roces added.

“I’m seeing that full-year, with oil still to pull down prices. Once supply chain difficulties ease up, that’s still going to be some form of price control on food,” according to Roces.

Edited by TSB