3 Major Contributing Factors for Inflation Rate in the Philippines

Has an inflation rate affected the poor or those below the poverty line? How will it affect you if you purchase a house and lot in the Philippines like Lumina Homes?

An inflation rate bears an advantage to property owners because they can sell their properties at a higher price. But, it can also cause them a disadvantage at the same time because only a few buyers have purchasing powers to buy such property.

In the Philippines, the rising inflation rates have affected many Filipinos. Since the pandemic is not over, many believe that their income will not be sufficient to survive. Among the affected are retirees and pensioners who buy their medical maintenance and low-income earners who can barely save. As a result, they need to compromise some essential goods and services, including healthcare.

So, know the causes of inflation and determine how to manage its effects to survive. 

What is an Inflation Rate?

One of the misconceptions people understood about inflation is that they do not realize that monetary policy is the major reason for the rising inflation. In the US, the federal reserve keeps its interest rates to combat inflation when the money supply increases.

However, inflation in the Philippines is about rising prices or paying more for goods and services you usually purchase at a lower cost. It can also be viewed as the decline of purchasing power because a person’s income cannot keep up with the increasing prices of goods and services. The most commonly used to index inflation are the Consumer Price Index and Wholesale Price Index.

• Consumer Price Index (CPI)

It’s a measurement that examines the weighted average of goods and services prices that belong to the consumer's primary needs. This includes food, transportation, and health care. It is usually calculated by taking changes in prices for each item in predetermined goods and services. Thus, the prices are on their retail level.

• Wholesale Price Index (WPI)

It’s a measurement that tracks the price changes of goods and services before they reach the retail level. It includes the country’s wholesale products, such as rice, sugar, and vegetables. 

What Causes Inflation: 2022 PSA Summary Report 

According to the Philippines Statistics Authority (PSA), the Philippines' has a 7.7 percent inflation rate as of October this year. It’s the fastest in four (4) years. It was mainly driven by high food and utility prices and will continue to thicken due to the recent typhoon damages.

However, inflation can be classified into three (3) types - Demand-Pull, Cost-Push, and Built-in Effect Inflation.

1. Demand-Pull Inflation

Demand-Pull inflation usually occurs when the consumer demand for goods and services exceeds their production capacity. So, when people use too much money to spend on goods, it also pulls higher prices. Thus, it creates a demand-supply gap, which means higher demand with lesser supply.

2. Cost-Push Inflation

When the production costs increase its prices, it is called cost-push inflation. It is a result wherein the prices increase while in the process of production inputs. The costs for all kinds of intermediate goods rise when the supply of money and credit are added and channeled into a commodity or other asset market. Hence, it can lead to higher finished products and services. One lead example of this is the oil and energy prices increase.

3. Built-in Inflation

Built-in inflation occurs when the prices rise and wages increase to maintain the living costs. Since the prices of goods and services rise, workers demand higher wages to sustain themselves.  

Pros and Cons of Inflation

On the other hand, inflation can also be viewed from a different perspective based on your point of view and change rate.

• Inflation is better than deflation. 

According to experts, deflation can lead to recession, and it can cause tremendous damage to the economy. One example is when the prices drop, consumers usually delay their purchase, hoping it could be cheaper in the future. 

• Inflation is a sign of a healthy economy.

Moderate inflation is also a sign of the country’s economic growth. The Philippines proves that inflation is part of our economic status, wherein it is only temporary and manageable.

• Inflation allows real wage adjustment.

With moderate inflation, employers or companies can freeze the wages of less productive workers. 

• Inflation allows adjustment of prices.

If inflation is moderate, prices of goods and services can be adjusted to attain their actual cost. 

Meanwhile, if inflation continues to impact the Philippine economy, it can also cause disadvantages.

• Inflation reduces international competitiveness.

If inflation goes out of hand, it can even destroy the economy. It can lead to fewer exports and deterioration of the payments in the current account balance. It can even wipe out the savings of middle-class earners and cause financial institutions to declare bankruptcy.

• Inflation creates uncertainty and lower investment.

Countries with higher inflation rates will tend to have lower investment rates and economic growth. Most investors are hesitant to put up their ventures in countries with uncontrollable inflation.

Manage the Effects of Inflation by Investing in Real Estate

Inflation will continue to impact the Philippine economy in the next few years. But this doesn’t mean our country has a poor business environment. Thanks to our government’s team of economic experts, the Philippines is recovering and doing well amidst a volatile situation.

As an ordinary Filipino, you can also manage the effects of inflation. It would be ideal to plan and strategize your finances to avoid overspending. Therefore, reduce your expenses by identifying your needs versus your wants. Explore other alternatives to your usual choices.

If you are unemployed or only have one job, it is best to explore other sources of income. You can do freelancing services or do business about which you are passionate. Lastly, take advantage of investing in real estate. Purchasing your own affordable house and lot in Lumina Homes can be an excellent option. Note that real estate properties are profitable during inflation since you can sell or rent them at a higher price. 

Reach out to one of our accredited sellers in your area or visit our official website and tap the message button to learn more about our affordable house and lot for sale properties nationwide. We are ready to assist and answer all your housing inquiries.