Four Major Causes of Price Increase

1. The abundance of gold and silver which were

brought to Rome that the people were freed
from paying taxes. Prices of goods increased
by 2/3 at once.
2. Monopolies of merchant, craftsman, and
laborers. These monopolies raised and fixed
prices or costs of their day's labor and products.
 Four Major Causes of Price Increase
3. Scarcity due to 2 major causes:
a. the excessive export from France or the
hindrance to bring to it things needed.
b. Wasting scarce resources.
4. Pleasure of the Prince and Nobles. The people
tend to prize and raised the cost of everything
the great lords like. (in modern economics, this
is known as demonstration effects on demand).
 Change in Price
Inflation
– average sustained or continuing
increase of price
–is defined as the annual rate of change or
the year-on-year change in the CPI.
http://www.census.gov.ph

Deflation
–average sustained or continuing
decrease of price
 Inflation
• How to measure inflation rate?

CPI2 - CPI1
IR= x 100%
CPI1

http://www.census.gov.ph
Consumer Price Index (CPI)

The CPI market basket contains a

sample of goods and services
(some 400 items) commonly
purchased by a group of households
in a particular area (11 retail markets
in Metro Manila and more or less
600 municipalities throughout the
country)
Consumer Price Index (CPI)
It is the weighted arithmetic mean of price
relatives, a variant of the Laspeyres
formula with fixed base year period
weights. http://www.census.gov.ph
∑ (Pn Qo)
CPI = x 100
∑ (Po Qo)
where:
Pn - price during the give period
Po - price during the base riod
Qn - quantity during the give period
Qo - quantity during the base period
 Year-on-Year Philippines Inflation Rates by
Commodity Group, June and May 2016 (2006 = 100)
Year 2016 2015
All Items 1.9 1.6
Food and Non- Alcoholic Beverages 2.9 2.3
Alcoholic Beverages and Tobacco 5.7 5.6
Clothing and Footwear 2.5 2.4
Housing, Water, Electricity, Gas,
-0.4 -1.2
and Other Fuels
Furnishing, Household Equipment
and Routine Maintenance of the 1.8 1.6
House
Health 2.5 2.4
 Levels of Inflation
• Moderate Inflation
• Galloping Inflation
• Hyperinflation
• Stagflation
• Deflation
 Inflation
• What is the optimal Rate of Inflation?
Inflation Rate Growth of per capita GDP

-20 – 0 0.7

0 – 10 2.4

10 – 20 1.8

20 – 40 0.4

100 – 200 -1.7

1000+ -6.5
Source: World Bank Policy Research Working Paper cited at cited at Economics 18th ed. by Sameulson

• Price Stability (lower unemployment and high output)

– Less than 3 percent (Schiller)
– 2 to 4 percent (Samuelson)
50 Edsa Revolution
Source:www.worldbank.org

45

40
Oil-price Shocks Inflation Rate of Philippines
35

30

25
Martial Law
Energy Crisis
20

15

10

0
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
 Causes of Inflation
• Cost-Push Inflation
• Demand-Pull Inflation
 Types of Inflation
Demand-pull Inflation Cost-push inflation
occurs due to increasing
when consumers
costs of production on the
suddenly or seasonally
part of the
demand some products,
thereby allowing suppliers producers/sellers. These
to increase prices to increased costs may be
result of increased
maximize profits.
Wage- wages, increased prices
push of raw materials or even
inflation an increased desire of the
Commodity- firm to earn more profits.
push inflation
Profit-push
inflation
 Undesirability of Inflation
• Economic plans and policies
• Fixed Income earners
• Pensioners
• Creditors
• Purchasing Power
 Inflation Gainers
• Flexible earners
• Speculators
• Debtors