National University-Manila

COLLEGE OF BUSINESS AND ACCOUNTANCY

551 M.F. Jhocson St, Sampaloc, Manila, 1008 Metro Manila

“We are not that high”: Factors that cause the increase

Of inflation rate in the Philippine Economy

A Final Paper

Presented to Mr. Ronald L. Pancho

National University-Manila

City of Manila

Abulencia Kyle T.

Cruz, Patricia Mae L.

Gonzales, Charly Louise

Guillermo, Natasha Pauline

Monterozo, Andrea

Norte, Ishi Kharina M.

Rigo, Sandara

November 2022

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 National University-Manila
COLLEGE OF BUSINESS AND ACCOUNTANCY
551 M.F. Jhocson St, Sampaloc, Manila, 1008 Metro Manila

Introduction

Several years ago, if you headed to your favorite fast-food establishment with a

hundred peso bill, you would most certainly leave with a full stomach. With one value meal

composed of rice and fried chicken, you may still buy one large fries and ice cream for

dessert, allowing you to quench your hunger. However, those were the good old days when

inflation wasn't as severe as it is now.

Inflation, as discussed by Economic History Professor L. H. White, is an increment in

the general level of commodity prices. Inflation movement is assessed and communicated

using a percentage rate known as the "inflation rate," which allows economists to determine

the extent of the increase from the prior level of price to the current one. Price changes were

prevalent in markets where trading occurs daily. In the Philippines, the price of siling labuyo,

or red chilies, climbed from Php 1,000 to Php 2,000 per kilo in 2020. This circumstance

caused problems for both consumers and merchants, as red chili sales declined due to a

supply scarcity. The consumers were affected as they had to spend a substantial amount of

money to purchase a specific commodity, but it was also bad for the sellers because many

people are choosing not to buy at all owing to the high price.

On the other note, inflation has now turned into such a major challenge that

determining a solution to address it has become complex. The highest inflation rate since

October 2018 occurred in July 2022, when the inflation rate increased from 6.1% in June to

6.4% in July. Many commodities were affected, causing citizens to be concerned about how

they will manage their expenditures in addition to the high costs of products that are affecting

their financial situation. President Bongbong Marcos, on the other hand, opposed the PSA's

June inflation report, saying in quotations, "I think that I will have to disagree with that

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 National University-Manila
COLLEGE OF BUSINESS AND ACCOUNTANCY
551 M.F. Jhocson St, Sampaloc, Manila, 1008 Metro Manila

number, we are not that high." In the same media briefing, Marcos emphasized the role of

fiscal policy in managing inflation, suggesting that changes to the Banko Sentral ng Pilipinas'

key rate will not be concentrated on strengthening the peso, which had begun to decline at the

time. Although as per Ateneo de Manila University economist Leonardo Lanzona, the

president has no idea how international trade works because money is not at the core of all.

Given how President Marcos Jr. perceived the inflation situation in the Philippines,

this study aims to identify the various reasons that contributed to the large inflation increase

since Marcos Jr.'s proclamation. This paper will also explore the implications of high

inflation rates in one's economy, particularly in the Philippines, and the country's future

condition if the country's inflation keeps increasing. The findings of this study will benefit

not only economists but also consumers and sellers, who have been adversely impacted by

the surge in the inflation rate.

Statement of the Problem

This study aims to gain knowledge of the factors that have caused the inflation rate

increase since President Ferdinand "Bongbong" Marcos Jr.

1. What is the difference between the inflation rate now to the inflation rate from

the past regime?

2. What is the effect of a high inflation rate on the country’s economy?

3. What will happen if the inflation rate of the country continues to rise?

Statement of the Pertinent Facts

Under the previous administration, the Philippines' inflation rate in 2021 was only

around 3.9%. Annual inflation, on the other hand, accelerated to 6.9% in September, the

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 National University-Manila
COLLEGE OF BUSINESS AND ACCOUNTANCY
551 M.F. Jhocson St, Sampaloc, Manila, 1008 Metro Manila

fastest rate in four years, with expectations that the central bank will raise rates again by the

end of the year, as it has done this year. It's becoming more popular. Under the current

regime, inflation is rising sharply and rapidly. Increased domestic investment and

consumption, combined with a relaxation of pandemic restrictions, will propel the Philippine

economy to 6.5% to 7.5% growth in 2022, with an additional 8% growth in 2023, making it

the fastest-growing economy in the world. Meanwhile, the median 2023 inflation forecast has

dropped from 3.2% to 3.1%. Analysts predict that average inflation will return to its target

range by 2022 and 2023.

In June 2022, inflation is higher than the 5.4% recorded in May 2022, and it is higher

than the 3.7% recorded in June 2021. NCR inflation increased as well. This represents an

increase of more than 5.6% over the previous month's figure of 4.7%. His NCR inflation rate

in June 2021 was only 2.6%, so the figures are also significantly higher year on year. Soft

drink inflation was 6% in June, up from 4.9% in May. Annual inflation in May 2022 was

only 14.6%, with the transport index coming in second at 17.1%. According to the annual

inflation forecast for 2023, inflation will fall to 4.0%, from 4.2% previously. In June 2022, it

was announced.

Prices for domestic goods and services have increased in recent months. recent

inflation. This year, at the end of July, the annual inflation rate was 6.4%. Last month he was

6.1% even in June. However, in May he was 5.4%. Average annual inflation in 2022

represents an acceleration in price appreciation as average annual inflation in 2021 was 3.5%

and 2.4% in 2020. Severe and moderate inflation. Inflation in the Philippines is an

uncomfortably high 6.4 y/y, but manageable from a policy perspective. When it comes to

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 National University-Manila
COLLEGE OF BUSINESS AND ACCOUNTANCY
551 M.F. Jhocson St, Sampaloc, Manila, 1008 Metro Manila

economic development and growth policies, the Philippine development policy offers 3-4%

annual inflation compensation. This is built into Bangkok Central's acceptance of relative

price stability. Economic growth is essentially a situation in which aggregate demand for

some form of spending may somehow be out of balance with the expansion of output, which

is essentially the level of supply. As long as this imbalance is not large, the process of growth

and development is sustainable and within relative price stability. Even at less than 10%, the

means available for control and moderation are still manageable. But the economic and

political costs of lowering inflation can only be achieved during political peaks. Countries

suffering from very serious economic and political problems experience very high or

hyperinflation (that is, very high inflation rates of over 50% per year). It is worth noting that

the Philippine economy experienced very high inflation in three different historical episodes.

Hyperinflation occurred in the final days of the Japanese occupation in 1944-1945. Very high

inflation rates in 1974 (34% after the Middle East energy crisis) and 1983-1984 (20-50%

during the balance of payments crisis triggered by the international debt crisis and

exacerbated by political assassinations). It took years of attempts at adjustment before the

country got out of this inflation.

Supply and demand forces at the macro or aggregate level can explain the causes of

inflation. It is essentially a tug of war or competition between aggregate demand, as

represented by aggregate spending on goods and services, and domestic supply. In general,

inflation occurs when aggregate demand exceeds production. As a result, we see an increase

in the overall price level. Because the economy is open, trade-related economic imbalances

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 National University-Manila
COLLEGE OF BUSINESS AND ACCOUNTANCY
551 M.F. Jhocson St, Sampaloc, Manila, 1008 Metro Manila

affect the aggregate demand and supply of goods and income. As a result, both domestic and

external or international factors are at work.

Price volatility is sometimes caused by external factors. External factors have

exacerbated the current episode, and certainly the episode of extreme inflation in the

country's history. Natural phenomena also cause an imbalance in raw material demand and

supply. The Philippines' recent experience with inflation has been attributed to a combination

of domestic economic factors as well as the influence of various external economic and

political conditions. The Philippines, as a labor exporter to the rest of the world, sees an

influx of labor remittances as part of its foreign currency earnings. Such remittances are

added to the net income of Filipinos working in the foreign economy in the country.

This explains why the Philippines' Gross National Income (GNI) exceeds its Gross

Production of Goods and Services (GDP). Before the pandemic, GNI exceeded the country's

GDP by 10%. This means that remittance income of this magnitude adds value and

purchasing power to the performance of the economy as a whole. Manage inflation.

Inflationary pressures can be managed by two different aspects of policymaking: (1) fiscal

and (2) monetary. But what often works best is (3) the appropriate adjustment of fiscal and

monetary policy to support the goal of fighting inflation. financial management. Government

budget spending results in two sets of policies that have opposing effects on the economy.

Spending gives purchasing power to the economy, thus increasing demand. But taxes reduce

the number of income people and businesses can budget for themselves. Government

spending priorities are determined based on the programs and projects in the development

plan. The government's strong commitment to these priorities and adherence to quality

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 National University-Manila
COLLEGE OF BUSINESS AND ACCOUNTANCY
551 M.F. Jhocson St, Sampaloc, Manila, 1008 Metro Manila

spending efficiency will ensure prudent management of its finances. Institutional and

departmental departments are responsible for implementing development programs and

improving public services.

Fortunately, significant reforms to the tax system have recently occurred to increase

income productivity. Tax breaks and investment incentives have been reinstated.

Furthermore, additional revenue-side measures are planned to increase tax and revenue

capacity. Such a plan would bolster efforts to keep inflation under control while also

accelerating growth. The Treasury Department's role in controlling deficits is critical in

controlling inflation. It is critical to maintaining a sustainable fiscal deficit each year. The

selection of investment programs and debt plans to fund shortfalls is critical for controlling

government debt and its long-term development. The current development strategy calls for

an ambitious six-year program to reduce the budget deficit year by year. monetary policy.

The Central Bank, also known as the Bangkok Central Bank, has complete control over

interest rate levels, which is the primary tool for controlling inflation. In response to the US

Federal Reserve's recent rate hike move, the central bank recently raised interest rates by

0.75%. This was an aggressive intervention to keep up with the US Treasury Department's

recent aggressive measures to reduce US inflation.

A. No one knows how long the current wave of inflation will last.

● Managers can upset their customers by raising prices, upset their investors by

cutting margins, or upset practically everyone by cutting corners to cut costs.

● Companies tend to deal with inflation by raising prices, accepting smaller

margins, or reducing product costs (and often quality).

B. What if the inflation rates continue to increase

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 National University-Manila
COLLEGE OF BUSINESS AND ACCOUNTANCY
551 M.F. Jhocson St, Sampaloc, Manila, 1008 Metro Manila

● Encouraging Work, Savings, investment, and increased labor supply, capital

supply, productivity, and personal savings can all contribute to lessening rising

inflation.

● They can bundle and unbundle current items to generate new value

propositions or expose clients to cheaper price points for the disaggregated

goods and services they desire to purchase.

● They can draw on insights from behavioral economics to change price gaps to

steer customers toward more profitable offerings.

Conclusion and Recommendations

Eventually, the Philippines, our country, is currently experiencing an inflation rate.

The prices of the goods that we are availing for our daily lives. All of the people around the

country are affected by the said problem. This case study will be looking for what might be

the cause of the problem and how it will be prevented.

In general, after studying this case, we found that the inflation rate directly affects

every person in the population. Right now, inflation continues to increase the prices of goods.

Through this topic, we will be studying how and when Inflation might decrease or it will be

more increasing. How our nation will be affected by this problem? We will be knowing how

effective and efficient the factors are to help the inflation rate in our country. Since Inflation

affects how commodities increase which reduces the demand from consumers. This paper

shows different facts and statistics regarding how inflation affects our Economy.

Based on the study's results and conclusions, the following suggestions or

recommendations were made:

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 National University-Manila
COLLEGE OF BUSINESS AND ACCOUNTANCY
551 M.F. Jhocson St, Sampaloc, Manila, 1008 Metro Manila

To limit the massive rise of the inflation rate, since some of the areas that are

identifiably causing the shoot of inflation, the government must make certain laws,

amendments, and adjustments regardless of the positive and or negative effects of inflation

and how people perceived it, the government must do something about this matter before it's

too late for all of us. There is also a pre-venture of building any infrastructure spending, but

the country needs to continue protecting vulnerable food prices. The researcher also proposes

that a future study be conducted on this problem so that people are aware of how we must

deal with the rising rate of inflation shortly.

Plan of Action

To Increase Revenue, and Change the Tax Code:

The size and structure of the tax code have the most impact on inflation because of

their effects on the size and distribution of after-tax income. Tax hikes have the potential to

lower demand in a distributional beneficial way, placing downward pressure on inflation.

Legislators can cut inflation even further by reducing tax expenditures and subsidies that

push up certain prices in the economy.

Limit Discretionary Spending, Cut Consumption-Oriented Spending, and Reduce State

Aid:

To further reduce demand, authorities should restrict next year's appropriations,

reintroduce discretionary spending caps to limit future spending growth, and decrease

spending on a variety of programs ranging from agriculture subsidies to Social Security

payouts for high incomes.

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 National University-Manila
COLLEGE OF BUSINESS AND ACCOUNTANCY
551 M.F. Jhocson St, Sampaloc, Manila, 1008 Metro Manila

Encourage work, saving, and investment:

Inflationary pressures can be reduced by increasing labor availability, capital supply,

productivity, and personal savings. Authorities might lower obstacles to employment by, for

example, removing the Social Security earnings test, enabling older employees to receive the

Earned Income Tax Credit, simplifying job requirements in some programs, offering

vocational training for disabled workers, and implementing other changes. They could

promote savings by encouraging the purchase of inflation-indexed bonds, enhancing the

saver's credit, or strengthening tax incentives for retirement savings. They could also help to

fund investments through regulatory changes and targeted federal funding. Importantly, any

inflationary advantages would be undermined if additional investments are not countered,

since greater demand will offset higher supply.

Stop Digging:

At a minimum, Congress should avoid making the inflationary environment worse.

They could do so by ending remaining COVID relief – including the student debt repayment

pause and enhanced Medicaid payments to states – that are boosting price levels by 0.2 to 0.7

percentage points. They should also avoid adding more to the deficit, whether through a gas

tax holiday, student debt cancellation, expanded veterans benefits, a “competitiveness" bill,

aid to restaurants, retirement reforms, or new tax cuts.

Lower Energy, Trade, and Procurement Costs:

Beyond the normal supply and demand channels, government policies and regulations

can influence the before- or after-tax price of various goods and services. For example, the

government can help control inflation by ensuring it is getting the best price for its peso,

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 National University-Manila
COLLEGE OF BUSINESS AND ACCOUNTANCY
551 M.F. Jhocson St, Sampaloc, Manila, 1008 Metro Manila

reducing tariffs that push up the price of goods, ending regulations that boost shipping costs,

and encouraging the extraction of fossil fuels and production of renewable energy, among

other means.

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 National University-Manila
COLLEGE OF BUSINESS AND ACCOUNTANCY
551 M.F. Jhocson St, Sampaloc, Manila, 1008 Metro Manila

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COLLEGE OF BUSINESS AND ACCOUNTANCY
551 M.F. Jhocson St, Sampaloc, Manila, 1008 Metro Manila

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