Saved You a Google: A brief introduction to inflation

Saved You a Google: A brief introduction to inflation

Wherein the author dusts off his economics textbook to make sense of rising vegetable and fuel prices.

This administration never runs out of ways to depress us, from its mockery of human rights, to hypocritical celebrity endorsements. So instead of talking about all that, we’ve decided to let y’all in on a little secret: more than the dead bodies, and if The Dictator’s Handbook is to be believed, then perhaps the one thing our dear president fears more than anything else in the world, is losing his grip on the economy.

And if our inflation rate is any indicator, is he ever starting to. At a rate of 6.4%, last month’s rate is both higher than the government’s worst-case inflation targets for the year, and the highest inflation rate our economy’s experienced since the Arroyo administration, which, must we remind you, was nine years ago. Not good.

But much like with any other oft-cited statistic, we also still want to understand the causes behind it. What exactly is inflation? What causes it? How does it affects us? And more importantly, what we can do to stop it from further rising? Allow us to give a brief introduction.

 

What is inflation, and what caused its rise in our current context?

Simply put, (at least according to my economics textbook), inflation is a phenomenon that describes the rising of prices over time. It describes the relative increase in the prices of commodities, or basic goods we use on a daily basis (e.g. rice, poultry, fuel), relative to a pegged price index. Price index here refers to a fixed “base year” that economists and scholars generally agree upon as the main point of comparison for all successive price increases moving forward.

 

Causes of inflation are usually grouped into two main categories: spikes in government or consumer spending and investment, and/or direct changes to the prices of our everyday goods.

 

Causes of inflation are usually grouped into two main categories: spikes in government or consumer spending and investment, and/or direct changes to the prices of our everyday goods. The former in our case can generally be attributed to the Duterte administration’s ambitious “Build Build Build” policy, which places heavy emphasis on government investment in large infrastructure projects.

The latter however is a bit harder to place, given that it nods back to our discussion on rising commodity prices, which analysts and economists attribute to a myriad of factors. The summary of factors most analysts agreed upon however, are the following: food and fuel price shocks triggered by the passage of TRAIN, and further stressed by rising oil prices all over the world, currency devaluations caused by the exodus of foreign and local investors due to political instability, and rice shortages due to government supply snafus.

 

How does this directly affect me, and us as a nation?

Understanding this question means understanding the direct consequences of unanticipated inflation. Practically speaking, that generally means unexpectedly higher prices for the average citizen. This explains things like the drastic increase in fruit and vegetable prices in the supermarket, and the surges in public transport fares and fuel prices over the past few months. This makes things we take for granted, such as maintaining specific diets, enjoying specific products and services (something as simple as a packet of instant coffee in the morning, or even that one movie you’ve been aching to see, for example), or something as fundamental even as being able to get around to work or school, becomes that much harder.

And unless these increases are supplemented by government policies that alleviate the pain caused by these price surges, whether with additional income or support programs for our basic necessities, then it just means that we will generally be able to afford less of most of our basic day-to-day needs in the long-term indefinite future. This does not even consider how the aforementioned 6.4% net inflation rate only represents the aggregate inflation rate for the whole country (meaning that its net price and income impacts are much, much worse in other parts of the country).

 

So what can be done?

The “good” news is that as of recent reports, the government does seem to have a plan outlined to address our rising inflation rates. We say “good” primarily because a lot of what they plan (e.g pause implementation of additional fuel excise taxes, temporarily lifting government rice import restrictions, cracking down on unnecessary business price hikes) should have been primary cornerstones of economic policy, and not emergency measures implemented on a need-basis. That, plus the fact that these measures don’t address additional planned price increases and tax reforms the government plans to implement within the next two years.

 

And therefore, on our end, I guess all we can do for now, is to continue to keep ourselves informed and use our knowledge to hold our governments accountable to their policy decisions.

 

And therefore, on our end, I guess all we can do for now, is to continue to keep ourselves informed and use our knowledge to hold our governments accountable to their policy decisions. The seemingly arbitrary shifts, which have real-life consequences on the costs of many goods and services that for many of us Filipinos, spell the difference between life and death. Reinforcing that understanding in discourse, and towards technocrats seemingly hell-bent on treating the country sole as a sterilized lab for the many theories and mathematical models they’ve picked up in the classroom, is perhaps the best we can do for now.

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