What happens to consumer prices merits the highest priority in economic policymaking. After all, consumption spending accounts for approximately two-thirds of this country’s GDP (gross domestic product). Of late the Filipino consumer has had plenty of reason to feel concern.
Consumer prices are on the rise. The Philippine Statistics Authority (PSA) and the Bangko Sentral ng Pilipinas (BSP) have reported that the inflation rate in March—4.3 percent—was the highest since August 2014 when the inflation rate was 5 percent. Inflation is the invisible taxman: every one percent rise in the inflation rate means a one percent decrease in the purchasing power of a consumer’s income.
To the upper strata of society a 4.5 percent inflation rate is not at all alarming, but to the lower strata – especially to the D and E income classes—it is a big deal. People who live at or close to subsistence level certainly don’t want a decline in their pesos’ purchasing power. The makers of this country’s monetary policies and the authors of analyses of the price situation may sincerely believe that the ongoing inflationary movement does not provide cause for worry, but they cannot afford to be complacent. If they put their ears to the ground—as they should—they will be able to hear the increasingly audible grumblings.
Economic policymakers generally react to reports of upward inflation-rate movements in one of three ways. The reactions usually come quickly because of the political implications of inflation.
The first and most obvious way is to deny the existence of an upward inflation-rate movement. This way will not be successful if the changes in the price data are significant.
The way in which economic policymakers react to reports of an inflationary trend is to acknowledge its existence but minimize its impact. They trot out figures purporting to show that new price data, though significant, are highly manageable. This will be followed by a statement that the economic managers have the situation well under control.
The third route that economic policymakers usually take when confronted by reports of an upward inflation-rate movement is to acknowledge that prices are trending upward but that the upward inflation-rate movement is attributable to forces of an abnormal or “beyond our control” character. Such forces include adverse weather or surges in the prices of key imported commodities, e.g. oil or rice.
Whichever way the economic authorities – especially the BSP – reacts to reports of upward inflation-rate movements, the Filipino people must be reassured that price-related things are under control and inflation is not going to stage a resurgence. Truth to tell, the people of this country do not appear to be feeling reassured. For one thing, the TRAIN-decreed excise tax increases are still working their way through the economic system. For another, world oil prices lately have been displaying renewed vigor. Additionally, there is the instability of the rice market occasioned by the confusion in government rice policymaking.
The economic authorities are trying very hard to convey the impression that inflation is under control and that consumer prices will not gallop away. Thus far they do not appear to have succeeded. The authorities will have to try harder.
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