"No economy will prosper if the inflation rate is not contained."
A tame inflation rate in the long-term period will discourage monetary authorities from raising interest rates to curtail spiraling prices, keep factory production cost relatively low and ensure overall economic growth.
It prevents the erosion of the purchasing power of every Filipino consumer and with lower production cost because of stable interest rates, factories and companies are encouraged to borrow from banks, expand their production and hire more workers.
Economic managers across the world pay special attention to the inflation rate. No economy will prosper if the inflation rate is not contained. Raising wages alone to compensate for higher prices, ironically, could be inflationary. Wage increases force companies to charge more for their products to pay for the higher salaries of workers.
The higher salary increases money supply in the system, raises demand for products and eventually hikes the prices of goods. This is called wage push inflation. A wage increase is not much help to the workers because the cost of products in the market has also risen.
Here in the Philippines, inflation pressures have built up since two years ago, driven by the supply side or lack of it. Fortunately, our economic managers have nipped the rising inflation in the bud. The inflation rate appeared to have been contained in June when it decelerated to 4.1 percent from 4.5 percent in the past three months.
Policy interventions to stabilize commodity prices have started to take effect. Rice prices and lately those of pork have recently increased due to supply constraints as local production is not enough to meet demand. The government eased rice importation and allowed meat shipments from abroad to counter the spike in pork prices resulting from the African Swine Fever outbreak that significantly reduced domestic pork production.
The food inflation in June stayed at 4.9 percent while prices of rice, vegetables and meat slowed. Meat inflation decreased to 19.2 percent in June from a high of 22.1 percent in April. Meat prices are still high from their year-ago levels but they should go down with the arrival of more imports.
The inflation rate is a critical component of the economy. It should rise or fall within manageable levels that permit economic growth, keep interest rates steady, preserve the purchasing power of consumers and reduce the unemployment rate.