A FEW weeks back, the Philippine Statistics Authority (PSA) released two inflation rates for the previous month. It was first reported to be at 4.7 percent, but was later adjusted to 3.9 percent. This created quite a fuzz in the economic community because the adjustment came as a surprise.
Some even speculated that these adjustments were done upon the command of a very powerful official because it was way beyond the target the Bangko Sentral ng Pilipinas initially forecasted, and administration officials and their trolls have been boasting.
First thing’s first, what is inflation and why is there a need to measure changes in the inflation rate?
Inflation is the sustained, general increase in the average level of prices of goods and services in an economy. Inflation rate is rate of year-on-year change of average level of prices of goods and services in what we call a “market basket.” The average level of prices of a set of products in the market basket is also referred to as Consumer Price Index (CPI).
When inflation rises, the purchasing power of our money in our economy may become so weak. Purchasing power refers to how much the Peso is worth in relation to how much value it had during the previous period. This means that our money can buy lesser amount or volume of products today compared to the prior period.
It is important to measure of the changes in the year-on-year inflation rate because it is showing a general trend of the prices of goods. For the producers, increasing prices mean that costs of producing also increased, therefore there is now lesser quantity of goods and services demanded by the households.
The increased prices also resulted to the decrease in the competitiveness of our exports to other countries, because our goods that are being sold abroad would seem to be expensive. Thereby, resulting to the poorer performance of our economy, with lesser GDP (gross domestic product) accounted for by the end of December, 2018.
If the inflation rate becomes volatile, meaning prices of goods and services have become more erratic or prone to drastic increases and decreases over relatively shorter periods of time.
That is why, what is really used by government regulators, to make it more exact is the Core Inflation Rate, removing the effects of the fluctuations of the prices of goods and service creating the disturbances in the agricultural food supply and movements in the international prices of oil.
Why was the inflation rate adjusted? Can anyone do that?
Inflation rate was adjusted, which according to the PSA’s press release, because of the move of the PSA to rebase or to change the base year from 2006 to a more current one, 2012. They chose 2012 as the new base year because it was the latest year that the Family Income and Expenditure Survey (Fies) were made available, and to make the data and information to be more relevant to the present times. A resolution of the agency approved these changes, and synchronized all indices accordingly.
Unfortunately, it’s only the PSA that can change the methodology of computing for the CPI and inflation rates, being the official government central statistical authority of the country. No other person or agency are allowed to change or adjust these information, however, the President can ask them to make the necessary adjustments if he wants to, being an attached agency to Neda, which is essentially under the President of the Republic.
As an effect of this rebasing, the inflation rate for the month of February is now at 3.9 percent.
Obviously, the prices of goods and services back in 2012 are more expensive than in 2006, that is why if the rate of change in prices in 2012 are compared to a farther past, the rate of change would really be lower.
Why is it an issue that the inflation rate was adjusted?
The adjustments done are not really the real issue here. Upon reading the methodology and the justification of the PSA for the adjustments, I saw that it can really be done, without any question of the reliability of the data generated by the statistics agency.
What I have issues on is the timing when these adjustments were done. As I said earlier, it came as a surprise for many people. Last January, the inflation rate reported was 4 percent already. It was already at the highest threshold of the target forecasted by the BSP and the other economic managers/advisers of the President (2 to 4 percent). What’s worse is that we achieved the highest threshold way before the 2019 forecast, and it is attributed to the implementation of this administration’s banner economic policy, the Train Law.
For other issues, the President is able to provide solutions, often now well-thought off, but may be considered as a feasible solution to that particular problem. Let’s not forget that these solution is most of the time twinned with some cussing. For this particular issue, some parties was asking Digong to command the BSP to increase interest rates, which the BSP resists to do. So, a more radical solution was done... change how inflation rate is calculated.
And so it was done. The new inflation rate is now at 3.9 percent, within what was earlier forecasted. Also, it is also within the rate that can still be considered as stable, rule of thumb, three to five percent.
How am I affected by the inflation rate, and why should it matter to me as an ordinary citizen?
As ordinary citizens, it matters to us greatly because we are the most affected by these increases in the prices of goods and services. We earn our own income for us to be able to spend for the goods and services that we need and want to buy. Our purchasing power is diminished greatly because of the price increases. We can now buy less of what our salary used to buy when inflation rate was lower.
These adjustments do not change the fact that prices of goods and services in the country increased and are continually increasing. It may have gained some more “pogi” points for the man in Malacañang, but certainly, we get to suffer more because of these “pogi” points he seems to have more concern on.