Inflation is the rate at which the prices of goods and services increase over time. It generally indicates a rise in everyday expenses faced by people within a country. Inflation can occur due to various reasons such as increased demand for products or higher costs of production which companies pass onto consumers.

When prices climb, the same amount of money can buy fewer goods and services, eroding the purchasing power Purchasing Power Purchasing Power represents the real value of money, indicating how much goods and services can be bought, and is closely linked to economic stability and the cost of living read more » of money. With same wages Minimum Wage The minimum wage is the lowest salary that employers are legally allowed to pay their workers. It's a standard set by law to safeguard workers from excessively low earnings and to ensure a minimum standard of living read more » , individuals may find their buying power diminishing as their earnings do not stretch as far as they once did. Inflation could also affect the value of people's savings. If the inflation rate exceeds the interest rate on savings, the real value or buying power of those savings decreases.

As inflation rises, central banks often respond by hiking interest rates to temper spending. For individuals, this could mean higher costs on loans and mortgages. For Businesses, this could deter their expansion and investment plans as due to increase in borrowing costs.

Inflation in the Philippines

The inflation rate in the Philippines can be influenced by a variety of factors. One of the significant drivers is the price fluctuations in essential commodities like food staples and fuel. Any change in their prices can have a ripple effect on the economy because of the country's heavy dependence on these commodities. Natural calamities like typhoons, are also a common contributor to inflation as they disrupt the supply chain in the country. Other factors that can further affect the inflation trends include global economic conditions, geopolitical conflicts and import/export dynamics. Understanding inflation is important for everyday Filipino, as it impacts the daily cost of living

Inflation in the Philippines is typically measured through some key indicators which includes headline inflation, core inflation and Consumer Price Index (CPI)[/shortcode]. Headline Inflation Headline Inflation Headline Inflation is the total measure of inflation in an economy, reflecting the price change of a broad set of goods and services, significantly influenced by food and energy prices. read more » or overall inflation measures the rate of price increase in a broader view. It encompasses all aspects of inflation including the volatile sectors like food and energy. Core Inflation Core Inflation Core Inflation measures the long-term inflation trend, excluding volatile items like food and energy, providing a clear view of the inflation that's directly influenced by economic policies read more » also measures the rate of price increase but it excludes volatile items to present stable perspective of inflation trends. CPI tracks the average retail prices of a fixed basket of goods and services commonly purchased by households, relative to a base year.

Healthy Inflation?

While inflation is often viewed with concern, it can also encourage economic growth when maintained at a low and steady rate. When inflation is too high, it erodes the money's purchasing power which creates economic instability and affects both individual and business perspectives in terms of savings, spending, and investments. On the other hand, a low and stable inflation rate can signify a growing economy. Businesses, noticing a gradual increase in prices, may anticipate higher profits, encouraging them to boost production and potentially create more jobs and other economic activities.

What about Deflation?

Deflation Deflation Deflation signifies a decrease in general price levels, increasing money's purchasing power but potentially slowing economic activity and increasing the real debt burden read more » is the opposite of inflation. It is the decline of the general level of prices of goods and services, which increase the purchasing power of money. On the surface it might seem beneficial because who wouldn't want cheaper price of goods and services, right? However, it comes with its own set of challenges that can hamper an economy.

For instance, when prices of goods and services are falling, people often hold off on spending in anticipation of even lower prices. This scenario may result in reduced consumer demand. When there is low demand for goods and services, businesses are compelled to cut back on production. This can lead to layoffs and reduced economic productivity. Deflation also discourages investment. Why put money into an investment that is likely to yield lower returns due to falling prices when you can simply hold onto your money and watch its purchasing power increase?

Both inflation and deflation can be severely detrimental to an economy in their extreme forms if not properly mitigated.

• Inflation rates are based on data obtained from Worldbank and PSA. Compiled data is from 1960 to 2024
• Historical minimum wage in NCR are based on data obtained from NWPC/DOLE. Compiled data is from 1951 to 2023
• Historical deposit interest rates are based on data obtained from BSP. The actual interest rate may vary depending on your bank or the deposit product of your choice. Compiled data is from from 1982 to 2023