Olivia Barredo
May 05, 2023

The Philippines has experienced different levels of inflation over the years, including certain periods of high inflation rates that have seriously disrupted the economy. To combat inflation, the government has put in place a number of plans, including price restrictions and modifications to the monetary system.

However, despite these initiatives, the Philippines continues to struggle with inflation, especially for low-income households, who are most at risk of price increases. To create effective solutions to lessen its consequences, it is important to understand the underlying causes and impacts of inflation in the Philippine context.

This article seeks to present a thorough analysis of Philippine inflation, including its causes, effects, and factors that contribute to high inflation rates.

Let’s begin.

What is inflation?

The overall rise in the cost of goods and services across an economy is referred to as "inflation." The Consumer Price Index (CPI) change as a percentage year over year is used to calculate the inflation rate in the Philippines. The CPI is a measure of the average cost of a selection of products and services, including food, housing, transportation, and healthcare, that are frequently used by families in the whole country. 

The Philippines' central bank, which is the Bangko Sentral ng Pilipinas (BSP), is in charge of maintaining price stability and keeping inflation within a predetermined range. 

The Philippines experienced changes in inflation recently, with the highest annual inflation rate being 5.2% in 2018. Nevertheless, the rate of inflation has since moderated, with the most recent figure being 3.5% in March 2023. In order to control inflation and keep it within a target range that is thought to be favorable for sustainable economic growth and development, the Philippine government and the BSP use a number of policies and procedures.

Causes of Inflation in Philippine Setting

According to Undersecretary Dennis Mapa of the Philippine Statistics Authority (PSA), the primary cause of inflation in January 2023 was housing, gas, and other fuels, which experienced an inflation rate of 8.5 percent and contributed 50.8 percent to the overall increase in inflation. Additionally, the upward adjustments in water tariffs and electricity rates also played a role in the acceleration of price increases during this period.

The rising prices of food and non-alcoholic beverages also contributed to the higher inflation at the beginning of 2023. This was driven by the increased costs of vegetables, tubers, milk, dairy products, eggs, fruits, and nuts.

Lastly, restaurants and accommodation services were the third-largest contributors to inflation in January 2023.

Effects of Inflation on the Economy and Consumers

Inflation affects the Philippines' economy by means of a reduction in consumer purchasing power. A consumer may be able to buy fewer goods and services with a given amount of money as a result of inflation. For those with low incomes who are unable to purchase the same amount of products or services as before, this effect is particularly severe. Because it forces people to buy goods and services that are less expensive and of lower quality. A drop in purchasing power may result in a fall in standard of living.

Also, the Investments decrease as a result of inflation. Investors are less likely to invest in domestic company ventures when inflation is high. Therefore, there may be less capital available to invest in start-up companies, which might lead to a drop in entrepreneurial activity. This might cause economic growth to slow down, which can be bad for the Philippines' economy in the long run.

Social instability in the form of strikes and protests can be brought on by inflation. Many residents may demand higher pay and benefits as the cost-of-living rises, while some may even call for more extreme improvements. This social discontent may have consequences for the nation's political environment in addition to its economy.

The Philippines' economy and consumers are seriously concerned about inflation. In order to prevent inflation and protect the wellbeing of the Filipino people, officials must act proactively.

Factors that Contribute to High Inflation Rates

Increase in Demand for Goods and Services

An increase in demand leads to a disruption in the supply chain. The imbalance between the demand and supply chain causes the price to increase, resulting in inflation. This can be observed in the prices of basic commodities such as rice, which is a staple food in the Philippines. The increase in its price is due to the rise in demand and the disruption in the supply chain.

Oil Price

The cost of transportation rises as a result of the rise in the price of oil as a whole, pushing up the cost of goods and services even more. Additionally, it has an impact on how homes and businesses are supplied with energy and electricity, raising living costs. This inflationary element can be reduced by regulating transportation costs and encouraging the use of renewable energy sources.

Government Expenditures

Inflation in the Philippines is largely driven by government expenditures and policies. Higher inflation may result from an abrupt increase in expenditures on infrastructure improvement projects, for example. The reason for this is that as the economy's money supply grows, so does the demand for products and services.

The rise in demand for goods and services, a hike in oil costs, and accelerated expenditures and policies are the elements that drive inflation in the Philippines. By establishing laws that limit the amount of money in the economy, limiting the price of transportation, encouraging the use of renewable energy sources, and curbing government spending, the government can reduce inflation. 

The government can effectively regulate the Philippines' inflation rate and preserve a stable economy by addressing these issues.

Tips for Individuals to Cope with High Inflation

To ensure that your savings are protected from inflation, it is recommended that you keep your money in pesos. This will ensure that your savings are in the same currency as the inflation rate, which will help you maintain the value of your money over time.

In addition to keeping your money in pesos, you can also consider putting it into a high-yield savings account. This will help you earn more interest on your savings and keep up with inflation.

Another option is to invest in government bonds, which are low-risk investments that can help you earn a steady income. Real estate is also a good investment option, as it tends to appreciate over time and can provide a steady stream of rental income.

Index-linked investments are designed to keep up with inflation by tracking the performance of an index such as the Consumer Price Index (CPI). Diversifying your portfolio by investing in a variety of assets such as stocks, bonds, and real estate can also help reduce risk and maximize returns.

Staying informed about the latest news and trends in the economy is crucial to making informed investment decisions. It is also important to develop a long-term investment plan that takes into account your financial goals and risk tolerance.

In conclusion, the issue of inflation in the Philippines is a complex and multifaceted problem that requires a comprehensive solution. In order to effectively address the root causes of inflation, the government must implement efficient and effective measures.