If inflation continues to soar, you're going to have to work like a dog just to live like one -George Leslie Goebel. He was an American humorist, actor, and comedian.
Inflation is a significant issue these days. It affects everyone. That is why it is worthwhile to know why it is essential to understand it.
Inflation refers to the movement of prices of widely-used goods such as rice, crops, electricity, water, and fuel.
Time Factor In Inflation
It is a concept in economics about increases in the price level of goods over some time.
The rise in the price level signifies that the currency in a given economy loses purchasing power (i.e., the same amount of money will buy fewer goods).
The cause of inflation in the short and medium-term is controversial even among economists.
The usual explanation is: Holding other factors the same, a rise in consumer demand for goods will increase the price of goods.
Causes Of Inflation
There are two causes of inflation.
The most common is demand-pull inflation. This type of inflation occurs when demand outpaces supply for goods or services. In this instance, buyers want the product so much that they are willing to pay higher prices.
The second type is known as cost-push inflation. That's when the cost of producing and selling a product increases, thus forcing an increase in its price.
A Sign Of Healthy Economy
However and surprisingly, a small amount of inflation could be a sign of a healthy economy.
A moderate inflation rate encourages consumers to spend or invest today rather than in the future when the value of the currency diminishes.
Destructive To Economy, Too
On the other hand, inflation can become a destructive force in an economy when it is allowed to get out of hand and rise fast.
Unchecked inflation can topple a country’s economy.
This situation happened when Venezuela’s inflation rate hit over 1,000,000 percent a month, causing the economy to collapse and forcing many of its citizens to leave the country.
Inflation reduces each unit of currency's purchasing power, which leads to increases in the prices of goods and services over time.
In other words, it increases the cost of living.
Price Hike And Inflation
In the Philippines? Inflation accelerated in December when food and transport costs continued to increase.
Prices of essential goods rose by 3.5 percent, faster than the 3.3 percent in November and 2.5 percent a year ago. This increase is the fourth straight month of an upward trend.
National Statistician Dennis Claire Mapa said that food and drinks, which rose by 4.8 percent, led to increased prices.
In particular, pork prices rose by 10 percent due to a surge in demand during the holiday season and some supply limitations due to the African swine fever (ASF).
Peaked In October
Looking farther back, in October, it was worse.
Prices of pork in Metro Manila markets went up by as much as 38 percent due to shortages in supply as local hog raisers remain cautious of the ASF.
The Department of Agriculture reported a kilogram of pork ham and pork belly sold for P300 and P320 on average.
However, in some public markets, prices have peaked to as high as P320 and P360, respectively.
Government Resolve
A significant government solution?
Creating a sub-task force group on economic intelligence that will go after smugglers, profiteers, and hoarders of agricultural products after pork prices, among others, continue to climb.
Critics of this type of government action in the highly vulnerable farm sector say that it is "too little or too late."
They note that in 2020 this sector suffered a 1.4 percent decline in production value, instead of the usual increase. (This reminds us of the saying: If you want nothing done, assign it to a committee)
Control Measures
There are many methods used to control inflation; some are effective, while others may cause damage. Controlling inflation through wage (to lower the cost of production) and price controls (to stop a price increase) can cause a recession and job losses.
The government, with different instruments at its disposal, will have to do a balancing act. For example, importing pork will reduce prices but will hurt farmers.
Ultimately, the welfare of the more significant number of people will have to be the determining factor, especially when the Presidential elections is only a year away.
Deadly And Frightening
Yes, inflation is a pain in the ___!
Consider these words from former US President Ronald Reagan - "Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man."