What is Inflation

by Gil on November 29, 2011

I have made some posts in the past about the inflation rate in the Philippines, however, I didn’t elaborate deeper on what is inflation and how it affects our lives and the economy as a whole. Because of this reason, I would like to make a short article about this topic to give you better understanding.

Have you ever wondered why prices of commodities and food increase as the time goes by? Maybe you heard the stories of your parents or grandparents about buying bread for 1 cent? At first, you cannot believe it, but you are later convinced that all of it are true in the past, only a history today.

What is Inflation?

Basically, inflation is the change in prices of commodities and services in a country, province or city. Inflation for the whole Philippines can be the same or different compared to the inflation in Mindanao or Cebu. In order to measure or quantify inflation, experts use inflation rate to gauge how is the inflation is changing as the time goes by. Inflation rate is the rate of change in inflation in a particular place.

Just what I said before, inflation rate for various places can be similar or different. There are some government agencies that study or survey the inflation rate in the Philippines, Metro Manila or outside Metro Manila. These agencies are the National Statistics Office (NSO) and the Philippine National Statistics Coordination Board (NSCB). So if you’re looking for the latest information about inflation rate, you may visit their website to find valuable data.

What are the Factors that Affect Inflation?

As what I said before, inflation always changes. There are several factors why it changes and I would like to discuss it here. Maybe if you have other inputs, you can make a comment below. In my understanding , inflation is affected by these factors:

1. Interest rate

Interest rate plays a big role in determining inflation. If the interest rates of Bangko Sentral ng Pilipinas (BSP) and other commercial banks increase, there is a big possibility of increasing the inflation since businesses need more money to pay for their loans which they will put on to the consumer products and services.

Companies need money for creating products and services. Sometimes, they need to borrow money from the banks to augment their capital needs.

2.Disasters/ Calamities

Typhoons, earthquakes and floods are big contributing factors to inflation. These calamities increase the food prices because of lesser food supply due to damaged farmlands and fish ponds. In effect, inflation will increase as the people need to buy food despite of high prices.

3. Government Instability or War

Political unrest, war or instability in the government can cause inflation to increase because of difficulty to create more food and services that people needs. One of the recorded highest inflation in history happened in Zimbabwe where they need to change their currency because of rapid increase of inflation.

For people like us, we want to have the lowest inflation rate as possible because it means more food and basic needs inside our home. However, inflation rate cannot be eliminated because businesses and companies benefit from it.

 

Image Source: jscreationzs

{ 1 comment… read it below or add one }

harish bohra January 13, 2012 at 7:42 am

UNITEDLY IF GOVT. TAKES DECISIONS FOR EVERY CITIZEN THEN ONLY WE CAN SAY WHAT IS THE FUTURE OF INFLATION OTHERWISE THIS MEANS THAT INFLATION IS A STUDY AND WE STUDY. BECAUSE THE PLANS FOR STATE NEVER SEEN IN OTHER STATES BECAUSE CENTRAL GOVT. IS NOT RESPONSIBLE THEN WHY IT HAS OFFICES OR CHARGES FOR STATE GOVT. CENTRE GOVT. MEANS STATE GOVT. IF FAILS IN IMPOSING ITS MAJOR UTILITY PLANS FOR PUBLIC OF STATE THEN CENTRAL GOVT. WILL SEE THE MATTER. QUICK AND FAST ARE BANK TRANSACTIONS PUBLIC ISSUES LIKE FOOD SHELTER AND EARNING ISSUES ARE GOVT. CENSUS ISSUES THEN WEHRE LIES THE CORRECTNESS IN CALCULATING MATTERS. HARISH CHANDRA BOHRA…PHONE NO.8233038580

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