Back to Basics: What is Inflation?

How do policy makers around the world deal with inflation? Should all of these apply to the Philippines? Why or Why not?

Inflation, I believe is one of the most popular terms in Economics. It is said to occur when there is an increase in the prices of goods or services in a certain period of time. It can also be defined when there is an increase in the cost of living in a country.

Reality speaking, the certain increase in price in the country can also come from the goods’ supply right? Like for gasoline for instance, we are now experiencing some increase in the price of gasoline because of the shortage that its supply is experiencing. And in my own point of view, we also experience an increase in prices due to the different seasons. Increase in prices is also seasonal. Like for instance, the price of commodities (food, clothing, etc.) increases during Christmas season. So there are also other causes of increases in the prices of goods and services.

But basically, what is the cause of inflation in a country? Well, in the 10 principles of economics, the ninth principle states that the prices rise when the government prints too much money. But what does it mean? Well, I believe that this also explains its relation to the said Quantity theory of Money in Economics where it states that when the money supply increases, it the value of money or its monetary value goes down which also causes the purchasing power to fall.

Policymakers tend to deal with inflation in different approaches according to its cause. It means they deal with it based on the causes of inflation. For Instance, Central Banks can implement contractionary policies if the economy has overheated. It rein in aggregate demand, usually by raising interest rates.

Some central banks on the other hand, try to impose monetary disciplines by fixing the exchange rates where its currency is tied with other currency. The government as well can set directly the prices where it is called the Administrative Price-setting in order to prevent an increase in the price of goods and services.

These are some of the ways policymakers try in dealing with inflation or the uncontrollable increase in the prices of goods and services.

In the question if all of these should be applied to the Philippines, I would probably say that no, it shouldn’t. Since the Philippines is not that experiencing a big inflation in its goods and services, then there is no need for these measurements and approaches to be implemented and applied.

But if there would come a time where the country shall experience inflation in its goods and services, I guess the government should try to consider some approaches that could help lessen the inflation though I’m not suggesting that all of these approaches shall be implemented. If that so is the case, then the Philippine government, themselves should be the ones to implement their own approach in dealing with the inflation within the country but a little help from other countries could be useful.

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One thought on “Back to Basics: What is Inflation?

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