Monday July 23, 2018

Villanueva: Unawain ang inflation

LAST week, my friend, Bryan, sent me a private message on Facebook suggesting that I write about Inflation, simple enough to be understood by accountants like him.

I have nothing against accountants, but I believe that there is inverse relationship between them and us, economists, like that of unemployment and inflation illustrated in the Phillips Curve. This perhaps explains our natural aversion of each other.

Admittedly, I struggled with the basic accounting subject I took way back, and Bryan admitted as well that he was challenged by the economics subjects he took in the undergrad and even in graduate school. I, on the other hand, did not struggle that much in graduate school because there were more decision making than manual solving.

Anyway, given that a close friend suggested and practically begged for me to write about this economic concept that has become a by-word even by the tambays during their bangketa conferences, assuming they have not yet been arrested by the very obedient law enforcer.

The discussion, for the purpose of letting more readers understand, is written using a good mix of the English language as well as in vernacular, Filipino and/or Iloko. It kind of reminds me of my high school economics subject back in the early 1990s, which was taught in awkward Filipino, and concepts were spelled as “suplay,” “elasticidad,” ”interes”, etc.


Inflation is a phenomenon described by the sustained increase in general level of prices of goods in the economy or ang isang pangyayari kung saan mayroong patuloy na pagtaas ng pangkalahatang antas ng mga presyo ng mga bilihin sa isang ekonomiya. Theoretically, the increase in the prices just follows the general rule. There may be some goods that did not increase their prices, and the percentage increase in the prices is the same for all goods. Basta, ang importante, nagsisitaasan ang presyo sa pamilihan kagaya ng ating nararamdaman natin ngayon.

Ang inflation sa isang bansa ay nasusukat gamit ang INFLATION RATE. Hango naman ito sa paghahambing ng mga Consumer Price Index (CPI) ng present month (or year) sa previous month (or year).

What is the Consumer Price Index (CPI)?

It is an indicator of the changes in the retail price of a fixed basket of goods that are usually consumed by households. Retail price ay yung presyo ng mga produkto sa palengke at supermarkets. Ito ang batayan dahil ito ang presyo na binabayaran ng mga households, at anumang changes sa retail prices ay may epekto sa mga mamamayan.

Ang fixed basket of goods naman ay isang imaginary na basket na kung saan ang mga produkto na madalas ikonsumo ng mga households ay napagsasama-sama. Binibigyan ng numerical weights ang bawat produkto base kung alin ang mas madami or mas kaunting nakokonsumo ng mga households base naman sa resulta ng Family Income and Expenditures Survey (FIES) na isinasagawa ng Philippine Statistics Authority (PSA) every 6 years.

Masalimuot ang pag-compute ng Inflation Rate. Mahaba ang proseso at marami ang kailangang isaalang-alang. However, more than knowing how we come up with the Inflation Rate, it is more important for us to know the causes and the effects of a higher inflation rate.

Inflation may be classified based on the underlying cause why prices increased. Demand-pull inflation is caused when there are more demand for goods and services in the economy. Ibig sabihin, may kakaunti ang supply kaya mas marami ang nag-aagawan para sa kakaunti. Ang natural na behavior ay magtataas ang mga nagbebenta dahil ang mga mamimili ay nanaisin pa rin bilhin yung mga produkto dahil kailangan nila ito.

Ang tanging makakabili ng mga produktong tumataas ang presyo ay ang mga may kakayanan o may pera. Sa pangyayaring ito, ang mga walang kakayanan o mga mahihirap ay di makakabili at maglulugmok lalo sila kahirapan. Ang masaklap, habang tumataas ang presyo, lalong dumarami ang nawawalan ng kakayanan bumili, resulting to an increase in the number of people in poverty.

Another type is cost-push inflation which is caused by the increase in the cost of the inputs of production. Habang tumataas ang gastusin ng mga industriya at mga business firms, ang tendency ay tataas din ang presyo ng mga produktong kanilang ibinebenta.

That is why the Train law which was signed in to law by President Duterte last December 2017 is being blamed for the increase in the prices of goods. The provision of the law imposing additional excise tax on fuel products created a domino effect on the prices of goods.

With the increase in fuel, electric power costs more as most of the power produced are generated from fuel-run power plants. Industries, in turn, use power for their machineries. So, an increase in the price of fuel entails more cost for the industries.

Distribution costs also increased as they use delivery trucks and vans use to transport their products. Ang pagpapatong-patong ng mga gastusing ito ay magreresulta sa mas mataas ng presyo ng mga produktong binebenta. The higher the costs, the higher the prices of the goods.

Exchange rate fluctuations also impact the prices of goods and services in the economy. When the exchange rate is high, the Peso equivalent of the US Dollar is higher, denote a weak Peso.

If we look at the positive side, if this happens, our exporters are happy because they can sell their products abroad and get paid more in Pesos as claimed by our brilliant economic managers who are held at the balls by the President.

But the reality is that most of our manufacturing firms import their inputs, causing their inputs to cost more. As earlier mentioned, if there are more costs incurred, the selling price of the products would be higher.