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Impact of Inflation to Family Households of Valencia, Virac

Introduction

The researchers will investigate how consumers of Valencia, Virac, Catanduanes were impacted
by inflation. For the purpose of determining how inflation has affected Valencia, the researchers will observe
and poll Valencia households. The quantitative research technique we'll employ is a comparative approach. By
using a comparison technique, we may examine the information gathered from the surveys we'll be doing to
determine our research.

The study of inflation has garnered extensive attention in academic and policy literature throughout
the last long time. This also applies to tracking and measuring inflation expectations as a part of a monetary
policy that targets inflation. However, gauging how the general population feels about inflation statistics

hasn't gotten much attention as an anchor for expectations.

Three support measures for implementing monetary policy are used by central banks in inflation-
targeting nations: inflation forecasts, explanation or escape clauses in the case of non-achievement of the
objective, and the monitoring of inflationary expectations. These protective measures are necessary since the
full impact of the present policy adjustments on the rate of inflation in the future won't be seen for some time.
The pace at which monetary policy changes are disseminated throughout the economy determines how long it
takes for adjustments to have an impact on inflation. The third and final metric, inflation expectations, is not
directly within the direct control of the authorities. This is reasonable since, rather than via public declarations
of the central bank's intentions for the future, inflation expectations are often developed through historical
policy actions and the performance of central banks in limiting inflation. The public's perception of the policy's
legitimacy is, in Mishkin's words, "an vital part to a successful anti-inflation program" (2004: 658).

Problems with dynamic time inconsistency (sometimes referred to as time consistency) come from
inconsistent policy choices because they raise expectations of future inflation (see for instance Kydland and
Prescott, 1977). An explanation of the subsequent behavior in terms of game theory between a central bank and
private economic players in their attempts to outsmart one another in forecasting real, rather than promised,
economic consequences is given by the temporal inconsistency problem1 in the conduct of monetary policy.
Since the announcement of a low inflation rate in period t affects the expectations and behavior function of
private economic agents in period t+1, the central bank may decide that a higher inflation rate is optimal,
leading to the implementation of a more expansionary policy than had been previously announced. By favoring
an explicit monetary policy anchor above the use of policy discretion, central banks work to avoid any temporal
inconsistency issues. This lessens ambiguity on the authorities' policy direction.

Chapter 1- The Problems and Its Settings

 Background of The Study

The study shows how inflation greatly affects the consumers. Inflation is one of macroeconomic
indicators become an important issueamong economists. Inflation is the tendency increase in average price in
general(Parkin, 1993). Meanwhile in other side, inflation is a condition which excessdemand for goods and
services generally (Lerner in Gunawan, 1995). According to (Mankiw, 2000), inflation is rise in all prices. So, a
policy related to inflation isa policy relating to price stabilization. Inflation is a general increase in prices, which
occurs when the demand for goods and services exceeds the supply of those goods and services. A slump in the
economy or an increase in unemployment can trigger inflation.
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 Statement of The Problem

To determine the impact of inflation on consumers in Valencia, Virac, this study will compare and
contrast the cash management of households before and during inflation. Given that the rise in the prices of
necessities has seriously impacted people, it is crucial to investigate how this change has influenced budgeting
and spending patterns. This information can then be used to develop strategies to help those affected by inflation
to better manage their finances.

Inflation has plunged countries into long periods of instability. Inflation is the rate of increase in
prices over a given period. Inflation is often measured in broad terms, such as the general rise in prices or the
rise in a nation's cost of living. But it may also be computed more precisely for some products, like food, or
services, like a haircut, for instance. Inflation, regardless of context, refers to how much more costly the real
world is getting. Prices vary at various rates. Others, such as salaries set by contracts, take longer to adapt (or
are "sticky," in economic language), while some, like the prices of traded commodities, vary daily.

 Research Objectives
Determine the impact of inflation on consumers.
To obtain the consumer’s alternative products
To be able to know how they sustain
 Significance of the Study

The result of the study will be a great benefit to the community of Barangay Valencia, Virac. Data given
will provide the community with information on how they can provide for the needs of their family despite the
inflation rate. This information can then be used to develop strategies to help those affected by inflation to better
manage their finances.

Inflation is a general and progressive increase in the prices of goods and services in an economy, which
in turn erodes the purchasing power of money. This phenomenon usually lowers the quality of people’s daily
life and discourages investment and savings, for the money on hand is not as valuable as before while the prices
of living necessities keep increasing (Mcbride, 2012). If inflation cannot be controlled to a limited range,
unemployment and unsteadiness will occur. Although high inflation rate does harm to a country’s economy, low
and moderate inflation sometimes comes along with economic growth, which to some extent has positive effects
to the economy.

Economic growth is another important issue for a country’s development. It is the increase in the
amount of goods and services produced by an economy over a certain period of time. Economic growth can
reflect the speed of economic development and the economic strength of a country, which can be determined by
the investment quantity, work output and the rate of production. However, it is always influenced by the policy
of a county and the current market circumstances. If the economy grows in a stable and smooth way, the quality
of life, social welfare and employment situation will be improved.

Scope and Delimitation

This study will be focusing on the family households of Valencia, Virac Catanduanes. The area of this
study is to determine the effects of inflation on each household of barangay Valencia and how they manage and
cope with inflation. The limit of this study is to gather the possible data in barangay Valencia, Virac
Catanduanes.

 Definition of Terms
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Inflation Rate- the rate of increase in prices over a given period of time. Inflation is typically a broad measure,
such as the overall increase in prices or the increase in the cost of living in a country.

Strategy- A plan of action or policy design to achieve a major or overall aim.

Finance- The management of money and includes activities such as investing, borrowing, lending, budgeting,
saving, and forecasting.

Comparative Approach- The characteristics or the parts are compared across two or more research situations. If
a difference is found between two situations, with an adequate degree of likelihood or probability, then the
origin or cause of the difference is sought.

Necessities – The fact of being required or indispensable. A state of things or circumstances enforcing a certain
course. Unavoidability.

Household – A group of people, often a family, who live together in a house. A social unit composed of those
living together in the same dwelling.

Chapter 2 – Review of Related Literature and Studies

In this chapter, the associated literature and investigations that have arisen from the current study are reviewed.
It offers the required context and understanding of the technique, theories, and research design for this study.

 Review Literature
The analysis, using a large micro dataset, suggests that inflation expectations negatively affect
saving attitudes, especially in the group of consumers characterized by a very good financial situation.
Moreover, the role of inflation expectations has increased since the global financial crisis. The results for
buying attitudes are somewhat puzzling—especially if one tries to interpret them together with the
results for saving attitude—as they also suggest a negative, although very weak, link to inflation
expectations (Premik, F., Stanisławska, E., 2017). Economists and policy makers increasingly consult
national household surveys asking individuals about their economic circumstances, financial decisions,
and expectations for the future. For decades, the Reuters/Michigan Survey of Consumers and other
national surveys have asked about expectations for “prices in general”, with responses being used by
academic economists, policy makers, and central bankers. Although median responses track official
inflation estimates, respondents exhibit considerable disagreement, with some reporting seemingly large
overestimations. Here, we demonstrate that changes in the wording of survey questions about inflation
expectations affect the central tendency of responses as well as their dispersion. We randomly assigned
respondents to questions asking about “prices in general”, “inflation”, or “prices you pay”. Respondents’
expectations and perceptions were lower and less dispersed when questions asked about “inflation”
instead of “prices in general” or “prices you pay”, with the latter two formulations eliciting similar
response patterns. These question-wording effects were mediated by how much respondents thought of
(extreme) personal price experiences when receiving questions about “prices in general” or “prices you
pay”. Compared to questions about “inflation”, questions about “prices in general” and “prices you pay”
elicited expectations that were more strongly correlated to expected increases in gas prices, which were
relatively large and likely salient at that time (Bruine de Bruin, W., et. Al., 2012)
 Related Studies
Local
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According to Rivera (2020), from a macroeconomic perspective, scholarly literature has

established that remittances are inflationary because they fuel higher consumer spending through
increased income. However, from the perspective of household decision-making, remittances can taper
consumption variations and soften inflationary pressures. In this study, we probe whether rising inflation
in remittance-recipient economies triggers the sending of remittances. In evaluating the impact of
inflation in the Philippines, we found that increases in inflation can prompt the sending of more
remittances from migrant relatives in the short run. More than the anticipation of remittances during
inflationary periods, it was shown that remittances are not necessarily inflationary. There were other
more dominant internal factors that can stimulate inflationary pressures. Thus, the usual arguments that
remittances contribute to economic instability still warrant further investigations. Inflation rate in the
Philippines is consistently increasing for the past few periods and has been the highest among the
ASEAN countries. Inflation is the general rise in the prices of goods and
services thus leading to a fall in the value or purchasing threshold of a country’s currency (Gatpolintan,
J., Avila, E., 2019)
Foreign
Inflation is simply rise in prices of commodities and devalues of money. It directly influences
the standard of living. This paper dealt with the effects of inflation on standard of living in terms of
expenses on food and non-food items, income, saving, loan and recreation. A sample of 200 male
heads of families was taken from 2 towns out of 6 towns of Multan, Pakistan; using multistage
sampling. Interview schedule was used as a tool for data collection. It was inferred from analysis of
data that inflation did highly affect the middle class. People are compelled to get loan and to do over
work, to fulfill their family expenditures due to the inflation. It was also concluded that standard of
living of middle class people is decreased in 2011 as compared to 2010 due to the inflation because
their expenses boomed up but there was minor increased in their income . Inflationary effects, at
family level, can reduce, never eliminate, through keeping money circulation and abating saving
during persistently intensifying inflation and renouncing to pay interest over money and goods, and
income ought to be increased with the same ratio of rise in inflation (Farid, F., et. Al, 2012)

This study aims to investigate the inflation effect on Somaliland’s low income families. Six
years of statistics reports from the CPI have been studied and analysed in order to calculate
the inflation rate. Further, 10 households from poor villages in Hargeisa have been
interviewed to understand the effect of inflation on low income families and how they cope
with it. The study found that inflation in Hargeisa is unsustainable having risen in all of the
last six years excluding 2013 where it declined -2%. All the prices have risen but in particular
the food prices are higher than the other items. For instance, according to the Somaliland
National planning 2016 CPI report in 2016 the food price increase hit 16.6%, while the nonfood items
reached 12.6%. Further, the exchange rate rose up to 26% during 2016 to April
2017. Moreover, the study found that the inflation effected Hargeisa low income families in
the areas of food and education. The low income families reduced either the quality or the
quantity of their food in order to cope with inflation. Poor families also removed their
children from schools as they were not able to pay the fees (Marjaan, S., 2017)
 Synthesis of the Review of Related Literature and Studies
Inflation is the overall rise in the prices of goods and services over time. So moderate inflation has
been a fact of life and the natural economic state for more than a century. This is inflation's primary and
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most pervasive effect. An overall rise in prices over time reduces the purchasing power of consumers,
since a fixed amount of money will afford progressively less consumption. Consumers lose purchasing
power whether inflation is running at 2% or at 4%; they just lose it twice as fast at the higher rate.
Compounding would ensure that the overall price level would increase more than twice as much over the
long run if long-run inflation were to double.
Lower-income consumers tend to spend a higher proportion of their income overall and on
necessities than those with higher incomes, and so have less of a cushion against the loss of purchasing
power inherent in inflation. This is what economists mean when they note that lower incomes correlate
with a higher marginal propensity to consume.

 Gaps Bridged by the Study

Numerous books and academic research have been written about how inflation affects consumers.
Studies and literature in this area are frequently highlighted regarding inflation

 Conceptual Framework

Inflation Rate Rises Products wont be

affordable to consumers

Affects income Less product consumed

Chapter 3 – Research Design and Methodology

 Research Design

The quantitative research methodology we will be utilizing is comparative approach. This comparative
approach allows us to analyze the collected data from surveys regarding the effects of inflation on family
households of Valencia, Virac Catanduanes. With this analysis, we will be able to identify patterns and contrast
differences in order to better understand how inflation affects those who live in Valencia and what do they do to
cope up with inflation. This understanding can then inform policy decisions or recommendations on how to
mitigate the negative effects of inflation on this population.

 Sources of Data

To achieve the study objectives, the researchers will distribute a close-ended questionnaire to every
representative of each households. The source of data will be coming from the hand out survey papers answered
by the household of Valencia, Virac. This study utilized stratified sampling to determine the impact of inflation
to the said respondents. Every member of a household who is 18 years old and above is a potential respondent
of this study. However, since the researchers cannot interview all members of a household, they will choose one
representative through stratified random sampling. We will be using a checklists to gather data from the
households of Valencia.

 Data Collection Method

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The questionnaire will serve as the primary data collection tool in this study. The researchers will ask
permission from the barangay hall of Valencia, Virac to conduct the survey. Then the researchers will survey
each household and gather data. The researchers will gather questionnaires accomplished by the researchers
themselves or an established question from sites/sources. These will be given to the representative of each
household. The questionnaire will ask questions about the household's income, expenditures, and other relevant
information. The researches collected the data by means of survey that comprises their comparison in financial
data before and during inflation. After the respondents have taken the tests; the papers were checked, tallied,
interpreted and analyze.

 Research site
The researchers will be conducting this research in Valencia, Virac Catanduanes. We will be
selecting 80-100 households to be part of the research that we will be conducting

Reference

https://www.sciencedirect.com/science/article/abs/pii/S0167487012000244

https://www.sciencedirect.com/science/article/abs/pii/0167487085900261#section-cited-by

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