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Anne Patricia A.

Morales
ABM-10

President Rodrigo Dutertes directive for the National Food Authority (NFA) to boost rice supply
from local farms before considering importation could unduly drive up consumer prices, New
York-based think tank Global Source said.
In a commentary titled Inflation risk from rice policy? by economists Romeo L. Bernardo and
Marie-Christine Tang, Global Source said the policy could lead to the depletion of NFAs
inventory, driving up local prices.
Inflation is one of the most important issues in economics. It influences the interest rate we get
on our savings and the rate we pay on our mortgages. Inflation also affects the level of pensions
and benefits, as well as the price of some train tickets. Inflation is the rate of increase in prices
for goods and services. There are a number of different measures of inflation in use.
The inflation rates are expressed as percentages. If CPI is 3%, this means that on average, the
price of products and services we buy is 3% higher than a year earlier. Or, in other words, we
would need to spend 3% more to buy the same things we bought 12 months ago. RPI includes
housing costs such as mortgage interest payments and council tax, whereas CPI does not. But
that only accounts for a small part of the difference between RPI and CPI.
The main difference is caused by the fact that, although they use much of the same data, they
calculate the inflation rate using different formulae. The one CPI uses takes into account that
when prices rise, some people will switch to products that have gone up by less. This results in a
lower CPI reading than RPI in nearly all cases. The method used to calculate RPI is no longer
considered as best practice so it has had its national statistic status removed, although the
Office for National Statistics (ONS) still calculates it every month.
Why is it important?
The data from the CPI and RPI rates are used in many ways by the government and businesses,
and play an important role in setting economic policy.
That's because the Bank of England uses inflation to set interest rates. If the Bank's Monetary
Policy Committee thinks CPI inflation will be above 2% in the next two years or so, it may
increase interest rates to try to subdue it. Conversely if it thinks inflation is likely to be below
2%, it may cut interest rates.
That's why inflation is a crucial factor in determining the rates banks charge for mortgages and
the rates they offer on savings accounts. It also has a direct impact on some people's incomes.
Anything that is described as index-linked rises in line with inflation, usually as measured by the
CPI or the RPI. State benefits and many occupational pensions rise in line with CPI. Government
index-linked savings products and some train ticket prices rise in line with RPI.

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