Objective Inflation in Philippines Essay

As obvious as it seems, the world is run by money. Businesses are established to earn money. Roads and other infrastructures were built because of money. People work because of money. This is of course in a metaphorical sense, but one cannot deny the fact that almost everything is valued through money and by money. In this economy, in this society, the involvement of money is extensive. Without that certain buying power, an individual cannot suitably fulfill his or her own needs and wants. This insufficiency of buying power is greatly seen in those people living in poverty.

In a recent study by the Philippine Statistics Authority in 2015, 21.9% or 1 in 5 Filipinos live in poverty. That is significantly a huge number of the country’s population who struggle to earn enough money for their basic living. With this, we come to focus on one of its many causes, which is the rise of the inflation rate of the country. Last September 2018, the country experienced the highest inflation rate in the past 9 years, with 6.4% (PSA, 2018). However, it has declined to 4.4% last January this current year, but still considerably high. Furthermore, an in-depth understanding of inflation must be grasped first—what is inflation, its causes and effects, and how it relates to poverty—to ascertain its impact and significance on the issue and its resolution.

First, what is inflation? According to Mr. Amador T. Sendin (2019), Chief Financial Officer (CFO) of Macroasia Corporation and also a CPA, the general meaning of inflation is that it is driven by the expansion of the supply of money more rapidly than the supply of goods and services. The value of money declines and prices rise. Unlike when its supply is at a constant or a slow, steady rate, the value of money will be relatively stable. This is directly related to the law of supply and demand. According to Bartolome (2018), the computation of inflation is based on the Consumer Price Index (CPI) of the economy. The CPI indicates the change in the average prices of primary goods and services normally bought by a household. It is the most common tool that is used in the calculation of the purchasing power of the peso and the inflation rate (PSA, 2018).

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In the case of the Philippines last year, the impact of the Train Law, where additional taxes were imposed on commodities, resulted in an increase in prices of the primary inputs to production. Processed goods became more expensive and people had to prioritize purchases and cut consumption (Ibon, 2018). Oil prices rose based on global supply and demand concerns especially since the Philippines is only a net importer of oil. Weather is also a disruptor. During the months when the country has experienced severe typhoons, commodities were scarce, especially agricultural products, causing prices to spike. Consequently, its major effect was it brought higher prices, not only to the masses but also to businesses, by their operating costs going higher. If the costs would not be able to pass on to the consumers, this reduces the net income of the businesses. This, in turn, will result in some businesses cutting expenses as well as salaries and wages, therefore causing unemployment. For people, especially those whose earnings are limited, inflation causes the prices of goods to be bought to be higher. Thus, people can only buy less. The effect came from the top until it came down to the consumers, especially the poor with low buying power, who are the primary sufferers. So, in simple terms, how does this affect an individual? It means one needs to pay more for the same goods and services.

Therefore, how does this inflation relate to or contribute to poverty? In a study conducted by GP Poverty & Equity (2017), in general, inflation and poverty have an indirect yet impactful relationship. It has been proven that higher inflation rates only worsen the poverty issue in a country unlike those with low inflation rates tend to have a lower poverty incidence. For instance, according to Sheridan (2019), the inflation of Japan was only 0.3% in December 2018. Moreover, it is also evident that Japan’s economy is developed and its poverty incidence is low. In comparison to the Philippines, this is the exact opposite as inflation is a major issue. In the past year, the effect of inflation has been truly felt—even the people in the middle class have experienced the rise of commodity prices, what more to those people in poverty? In an article written by Ordinario (2018), he said that the current rise of inflation in today’s time is consistent with the findings of a 2008 study by Asian Development Bank (ADB) economist Hyun Son. That study stated that a 10% increase in the prices of food could lead to 2.3 million poor Filipinos, while the same increase in non-food prices could lead to an addition of 1.7 million to poverty. This only means that as the inflation goes higher, more Filipinos will be plunged into poverty. The government is doing poverty reduction measures, but it seems there are still many first-in-line problems that must be taken into consideration first—and the issue of inflation is only one of many. In an article by Rivas (2018), the Philippines was warned by the World Bank, as Rong Quan, World Bank Senior Economist, said that persistently high inflation slows down the poverty reduction measures of the country, which in turn may only make the efforts wasted.

That being said, the question for resolution is asked, what is the mere solution to this? It is simple: to lower the prices of goods and services. A very direct and brief statement for a resolution but still branches out to several points to achieve the goal of controlling inflation to lessen poverty. First, is the proper control of the country’s monetary policy. The government must efficiently circulate the flow of money toward the citizens to avoid overprinting and debt-taking from creditors. Second is the strict implementation and proper usage of the fiscal policies of the government. These fiscal policies refer to the taxes collected as government funds. These funds must be put into projects for poverty alleviation such as free education, housing, and low-cost goods and services. Third, the government must already have the capability to export its goods. Nevertheless, if exportation is not extensively possible, the government can adhere to a faster importation of basic goods to garner a larger supply for the masses. This, in turn, will force the market to lower its prices since the supply is large enough for the demand. Ultimately, the greatest error and misconception that people think of as a way out of poverty is—the increase in salaries and wages. This is entirely counter-productive to the goal in the long run. As agreed upon by Sendin (2019), said that these salaries and wages will always be seen by people as wanting or lacking. Increasing this item just increases the cost base for the pricing of goods, and as prices increase, the inflationary wheel rotates endlessly. The reason people are complaining about the buying power of their wages is that the basic services–food, clothing, shelter, education, health, etc. are simply becoming more expensive, often due to the failure of the government. The government should do more to increase the non-wage benefits such as coverage for health insurance, free education, lower power and transport costs, etc. A better government implementing more programs beneficial to the poor or uplifting the general living conditions can better support workers. In such a situation, the masses will see no justification for the clamor that wages are insufficient.

In conclusion, the issue of inflation is one of the great foundations of the larger issue, which is poverty. Quoting Uy (2018) in her article “Thinking Beyond Politics” she said, “The inflation mess is the failure of our top officials to coordinate the appropriate policy response to several long-standing issues. The administration has lined up several grand plans within its term, but unless it manages to address these issues, it will only risk biting more than it can chew.” It means that only those in power can directly and immediately address the problems in inflation and resolve them. Hence, the only job of the people is to adhere to these implemented policies, which in the hope is better, by those in power.