Have you ever noticed how your grocery cart can only hold quite a number of items each year because your 1,000-peso bill can only hold as much? Inflation is to blame for having to reduce your grocery budget in order to allocate funds for other necessities such as tuition, rent, and utilities. The rate of inflation is responsible for the rise in commodity prices over time. When a currency loses value, prices rise, and fewer goods and services are purchased. This loss of purchasing power affects the general cost of living for the general public, resulting in a slowing of economic growth. In general, inflation is a broad measure of a country’s cost of living. Countries, particularly the Philippines, are now concerned about rising inflation rates in 2022.
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The increased inflation rate in the Philippines had been widely publicized on various platforms. It is very important because it will determine how we will cope with the constant rise in prices. To demonstrate how inflation works, imagine inflating a balloon. If you blow too softly, the balloon becomes flaccid and wrinkly; if you blow too hard, the balloon will eventually pop. Inflation works in an economy in the same way that blowing into a balloon does; it works well as long as it is consistent and kept in check. To counteract this, a country’s appropriate monetary authority such as the central bank takes the necessary steps to manage the supply of money and credit in order to keep inflation within acceptable limits and the economy running smoothly.
According to the Philippine Statistics Authority (PSA), the 6.1 percent rate is a three-year high record, the highest since the rice crisis in October of 2018, when the rate was 6.9 percent. In addition, they also mentioned that “The uptrend in inflation for June 2022 was primarily caused by the higher annual growth rate in the index for food and non-alcoholic beverages at 6.0 percent, up from 4.9 percent the previous month,” they write. This was followed by transportation, whose index increased by 17.1 percent year on year, up from 14.6 percent in May 2022.”
How is Inflation Measured?
In the Philippines, the consumer price index (CPI) compares current prices of a set of goods or services to previous prices to determine the inflation rate. Government agencies conduct household surveys to identify a basket of commonly purchased items and track the cost of purchasing this basket over time to determine the average consumer’s cost of living. Take note that these are used by statisticians, which is why the base years and composition baskets of whether goods or services must be carefully considered, as the computation will be irrelevant otherwise.
What is the Report on the Inflation Rate in the Philippines?
The PSA released a summary of the consumer price index (CPI) report for the bottom 30% of income households in April 2022 on May 5, 2022. According to the report, inflation for April 2022 increased to 3.8 percent for the bottom 30 percent, bringing national inflation to 3.2 percent. The following commodities’ increased prices caused the inflation rate to rise:
- Alcoholic beverages and tobacco, 6.4 percent;
- Clothing and footwear, 2.2 percent;
- Housing, water, electricity, gas, and other fuels, 5.6 percent;
- Furnishing, household equipment and routine maintenance of the house, 2.7 percent;
- Transport, 4.5 percent;
- Recreation and culture, 1.9 percent; and
- Restaurant and miscellaneous goods and services, 3.2 percent.
In comparison to PSA’s recent report for June’s inflation rate, the prices of the following commodities rose to:
- Alcoholic beverages and tobacco, 7.9 percent;
- Clothing and footwear, 2.5 percent;
- Housing, water, electricity, gas, and other fuels, 5.9 percent;
- Furnishings, household equipment and routine household maintenance, 3.3 percent; and
- Restaurants and miscellaneous goods and services, 3.3 percent.
The remaining commodity groups maintained their annual growth rates from the previous month. Similarly, national food inflation increased to 5.1 percent during the month, up from 4.1 percent the previous month. Its annual rate was 3.6 percent as of June 2021. The higher food inflation in June 2022 was primarily caused by a 6.5 percent annual increase in the fish and seafood index, up from 5.2 percent in May 2022. Furthermore, the meat index increased at a faster annual rate of 8.7 percent in June 2022, up from 6.9 percent the previous month. During the month, the rest of the food groups experienced higher annual inflation.
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What are the plans of the government?
“6.1? I believe I must disagree with that figure. We are not that high.” President Ferdinand “Bong Bong” Marcos Jr held a press briefing in which he was questioned about how to deal with the Philippines’ accelerated inflation rate. He expressed his dissatisfaction with the inflation figure provided by the Philippines Statistics Authority (PSA), but did not elaborate. He also stated, “We have to be careful because our economic policy right now monetary —- our monetary policy right now is essentially to use interest rates to hold, to take control of the inflation rate.”
Furthermore, BSP Governor Felipe Mandalla stated that a gradual increase in policy rates should be considered in taming inflation in the coming months. This is preferable to the increase of 25 basis points. As a result, an increase in interest rates to keep up with rising inflation is more likely. Furthermore, the BSP reiterates its support for carefully coordinated efforts by other government agencies to implement non-monetary interventions to reduce the impact of persistent supply-side factors on inflation.
What is more, Marcos believes that the accelerated inflation rate in the Philippines is the result of a factor “beyond our control,” as much of this inflation is based on “imported inflation,” with the majority of our goods being imported. As a result, as concurrent secretary of agriculture, he vows to create a strategic food supply by increasing local food production and importing as little as possible.
How Should Policymakers Handle Inflation?
The implementation of policies to stabilize inflation is dependent on the driver of inflation. For example, if inflation is caused by overheated centralized banks, policymakers should implement contractionary policies that focus on demand, such as raising interest rates. Some centralized banks choose to impose monetary discipline by stabilizing exchange rates from one country to the next and tying their currency rates from one country to the next.
However, according to research, when inflation is driven by global rather than domestic factors, such policies above may be ineffective in handling inflation. When global inflation rose in 2008 due to high food and fuel prices, many countries allowed the high global prices to pass through to the domestic economy. In some cases, the government may set prices directly (as some did in 2008 to prevent high food and fuel prices from passing through). Administrative price-setting measures typically result in large subsidy bills accruing to the government to compensate producers for lost income.
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