The Philippines Inflation Crisis, Explained

Summary

The Philippine economy experienced a remarkable 7.6% growth in 2022, marking a four-decade high, but inflation rose to 5.8%, impacting sectors like agriculture. The Central Bank responded by increasing interest rates to combat inflation, which could affect future economic performance. Despite this, the country saw benefits from moderate inflation, encouraging spending and growth. The government's delayed intervention in the agriculture sector and the robust private sector's resilience contributed to the GDP growth, even amidst inflation.

Takeaways

• 📈 The Philippine economy experienced a four-decade high GDP growth of 7.6% in 2022.
• 📊 Inflation in the Philippines rose to 5.8% in 2022, causing significant disruptions, particularly in agriculture.
• 🏛️ The Central Bank of the Philippines responded to inflation by increasing interest rates, which could impact future economic performance.
• 🤔 Many people are unaware of how inflation affects the economy and its potential harm, especially to the middle and lower classes.
• 📉 Inflation rates varied throughout 2022, starting at around 3% in January and February, and peaking at 8.1% in December.
• 🌐 Supply issues, typhoons, global commodity prices, and lack of government intervention contributed to the inflation crisis.
• 💡 Moderate inflation can be beneficial for an economy by encouraging spending, investment, and economic growth.
• 🏦 The Central Bank aims to reduce inflation to 2%, which is considered optimal by many developed nations.
• 💼 Rising interest rates can slow economic growth and decrease inflationary pressures by increasing borrowing costs.
• 🌾 The agriculture sector was severely impacted by inflation, with issues like supply shortages and high prices for commodities like onions.

Q & A

What was the Philippines' GDP growth rate at the end of 2022?

The Philippines' GDP growth rate at the end of 2022 was a four-decade high of about 7.6 percent.

What was the inflation rate in the Philippines in 2022?

In 2022, the inflation rate in the Philippines climbed to 5.8 percent.

How did the high inflation rate in 2022 affect the Philippines' economy?

The high inflation rate caused havoc in key areas such as agriculture and led the Central Bank to hike interest rates, which could reflect negatively in later quarters.

What was the inflation rate in the Philippines in January and February 2022?

In January and February 2022, the country posted an inflation rate of about 3 percent.

What was the highest inflation rate in the Philippines in 2022, and when did it occur?

The highest inflation rate in 2022 was 8.1 percent, occurring in December, the highest since November 2008.

Why is moderate inflation considered beneficial for an economy?

Moderate inflation can be beneficial for an economy as it encourages spending, investment, and promotes economic growth.

What is the central bank's target for inflation in the Philippines?

The central bank of the Philippines has vowed to bring inflation down to as low as 2 percent, which is considered historically optimal by many developed nations.

What are the three factors that the central bank can use to control inflation?

The three factors that the central bank can use to control inflation are interest rates, quantitative easing, and government securities.

How did the central bank of the Philippines respond to the inflation in 2022?

In response to inflation, the central bank of the Philippines increased interest rates from a low of 2 percent in February 2022 to over 5.5 percent by December of the same year.

Which industry was most affected by inflation in the Philippines in 2022?

The agriculture industry was most affected by inflation in 2022, with issues like supply shortages, typhoons, global commodity prices, and lack of government intervention contributing to the problem.

What was the unemployment rate in the Philippines at the time of the script, and how did it contribute to GDP growth despite inflation?

The unemployment rate was at 4.2 percent, the lowest from 1986 to the time of writing. This low rate, along with a robust private sector, helped to keep consumer spending up despite the high inflation rate, contributing to the high GDP growth.

Outlines

00:00

📈 Philippines' Economic Growth Amidst Inflation

The Philippine economy experienced a significant growth of 7.6 percent in 2022, marking a four-decade high. This growth was celebrated as a sign of recovery from the Covid-19 pandemic. However, inflation, which rose to 5.8 percent, posed a challenge, particularly impacting sectors like agriculture. The Central Bank responded by increasing interest rates, a move that could have negative effects in the future. The public's understanding of inflation and its impact on the economy is limited, and the script aims to clarify these concepts. Inflation, which erodes purchasing power, is especially harmful to the middle and lower classes. While moderate inflation can stimulate spending and growth, high inflation, as seen in the Philippines, can be detrimental. The Central Bank aims to reduce inflation to 2 percent, a historically optimal level, using tools like interest rates, quantitative easing, and government securities. The interest rate, in particular, was increased from 2 percent in February 2022 to over 5.5 percent by December, with further increases anticipated. This could slow economic growth but is necessary to control inflation.

Keywords

💡Inflation

Inflation refers to the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. In the context of the video, inflation in the Philippines reached 5.8 percent in 2022, causing significant challenges in sectors like agriculture. The video explains how high inflation can erode purchasing power, particularly affecting the middle and lower classes, and how it led the Central Bank to increase interest rates to combat the issue.

💡Interest Rates

Interest rates are the cost of borrowing money and the return on savings. The video discusses how the Central Bank of the Philippines increased interest rates from 2 percent in February 2022 to over 5.5 percent by December to curb inflation. Higher interest rates make borrowing more expensive, which can slow down economic growth and reduce inflationary pressures by decreasing consumer spending and business investments.

💡Quantitative Easing

Quantitative easing is a monetary policy used by central banks to stimulate the economy by increasing the money supply in the economy. Although not explicitly detailed in the video, it is mentioned as one of the factors that central banks could use to manage inflation. In the context of the video, it is one of the tools that could potentially be used by the Central Bank of the Philippines to influence economic conditions.

💡Government Securities

Government securities are financial instruments issued by the government to raise capital. They are debt obligations of the government, typically in the form of bonds. The video suggests that managing the issuance of these securities could be a strategy for the central bank to control inflation, although it does not delve into specifics.

💡Supply Side Pressures

Supply side pressures refer to factors that affect the supply of goods and services in an economy, such as production costs, availability of raw materials, and labor. The video points out that the rise in prices in the Philippines was driven by supply side pressures, such as typhoons harming the agriculture industry, rather than an increase in demand.

💡Agriculture Industry

The agriculture industry is a sector of the economy that involves farming, fishing, and other activities to produce food, fibers, and other plant and animal products. The video highlights that the agriculture industry in the Philippines was severely impacted by inflation, with examples like the high prices of onions due to supply issues, typhoons, and lack of government intervention.

💡GDP Growth

GDP growth, or Gross Domestic Product growth, is the rate at which the total value of a country's goods and services increases over time. The video discusses the Philippines' GDP growth reaching a four-decade high of 7.6 percent despite rising inflation, which is unusual as inflation typically slows GDP growth by reducing consumer spending and increasing production costs.

💡Unemployment Rate

The unemployment rate is the percentage of the total labor force that is unemployed but actively seeking employment. The video notes that the low unemployment rate in the Philippines, at 4.2 percent, has been a significant factor in maintaining consumer spending and supporting GDP growth, even in the face of high inflation.

💡Purchasing Power

Purchasing power is the value of a currency's ability to purchase goods and services. It is directly affected by inflation, as higher inflation rates reduce purchasing power. The video explains how inflation in the Philippines has led to a decrease in purchasing power, which is particularly harmful to the middle and lower classes.

💡Monetary Policy

Monetary policy refers to the actions of a central bank, such as the Central Bank of the Philippines, intended to control inflation and regulate the money supply in the economy. The video discusses how the central bank's monetary policy, including adjusting interest rates, is used to manage inflation and maintain economic stability.

Highlights

Philippines' economy ended 2022 with a 7.6 percent growth rate, a four-decade high.

Inflation in the Philippines reached 5.8 percent in 2022, affecting key sectors like agriculture.

The Central Bank of the Philippines increased interest rates in response to rising inflation.

Inflation rate in the Philippines spiked to 8.1 percent in December 2022, the highest since November 2008.

Moderate inflation can encourage spending, investment, and economic growth.

The Central Bank aims to reduce inflation to 2 percent, considered optimal by many developed nations.

Interest rates, quantitative easing, and government securities are key tools for managing inflation.

Interest rates were increased from 2 percent in February 2022 to over 5.5 percent by December.

Rising interest rates can slow economic growth and decrease inflationary pressures by increasing borrowing costs.

Inflation primarily harms the middle and lower classes in the Philippines due to decreased purchasing power.

The agriculture industry in the Philippines was severely impacted by supply issues, typhoons, and global commodity prices.

The government's delayed intervention in the agriculture sector, particularly regarding onions, contributed to high prices.

The National Budget for 2023 increased agriculture spending in anticipation of ongoing issues.

The Philippines posted a high GDP growth despite inflation, partly due to a low unemployment rate and a robust private sector.

The unemployment rate was at 4.2 percent, the lowest since 1986, supporting consumer spending.

Transcripts

When the Philippines economy ended in 2022,  with a four-decade high of about 7.6 percent,  

several netizens, economists, and even lawmakers  praised the notion. The country’s path to  

recovery from Covid-19 has finally arrived  as they say! Well, here’s the thing. There  

is another actor in the vicinity that is harming  the country’s overall status, inflation. In 2022,  

inflation had climbed to 5.8 percent, causing  havoc in key areas such as agriculture,  

and led the Central bank of the country to move  faster in hiking up interest rates, which may  

reflect negatively in later quarters. Most people,  however, do not understand how inflation works,  

and how much it harms the Philippine economy.  First, the inflation rate is even seen in the  

later months of 2022. In January and February  2022, the country posted an inflation rate of  

about 3 percent, but by November and December?  8 and 8.1 percent, respectively. The highest  

since November 2008. Some economists have  pointed out that it may continue to 2023,  

which as we noted earlier, will put the central  bankers of the country in a position where they  

may need to increase interest rates. Okay, so  we are just throwing jargon left and right,  

none of these may make sense now, so let  us discuss all these in further detail.

First, let us understand inflation in general.  Inflation is generally considered bad because  

it leads to a decrease in purchasing power, and  the money becomes worthless over time. The higher  

the inflation, therefore, the worse it is for  consumers. But in the case of the Philippines, the  

people that get harmed the most are the middle and  lower class. These people are seeing unfortunate  

times. These can also harm businesses as they may  harm their plans for the future. But don’t get me  

wrong here, inflation is generally good. Moderate  inflation can be beneficial for an economy due to  

a variety of factors, such as the encouragement  of spending, investment, and promotion of economic  

growth. And whenever inflation is too low, it may  also be a sign that monetary policy is too tight,  

leading to a decrease in economic activity.  That is why the central bank of the country  

has vowed to bring inflation down to as low as  2 percent, which is understood historically, and  

by many developed nations as the optimal number.  How can the central banks in the Philippines do  

that? Well, there are three large factors that  we pinpoint here. Interest rates, quantitative  

easing, and government securities. The most  important, however, is interest rates. Because  

it is what we have seen the central bankers do  in recent months. In February 2022, the interest  

rate was at a staggering low of 2 percent, but  as of December of that year, it increased to over  

5.5 percent. It is also expected that the central  bank will further increase them over the following  

months. Rising interest rates will impact consumer  spending by, of course, increasing borrowing  

costs and among others. Doing so would eventually  slow economic growth and decrease inflationary  

pressures. Because if they do not do this, and let  inflation run, it will again, if we trace back to  

our earlier statements, hamper purchasing power.  But most importantly, hurt the middle and lower  

classes of the Philippines. Which is arguably  exacerbated by the massive inequality rate.

Okay, now that we have gone past what inflation  is and why it may be good or may not be too good  

for the Philippines, let us then discuss what led  to the country’s inflation rate to begin with, and  

what particular sectors were hit the most. There  were a lot of specific industries that were hit  

the most in 2022, and as we noted earlier it was  the entire agriculture industry. In case you have  

been wondering why onion prices have become the  most expensive globally, this is it. First, there  

were supply issues. JPMorgan Global Strategies  stated in an interview with CNBC that the rise  

in prices was driven by “supply side pressures”  rather than an increase in demand. Supply-side,  

meaning there was a lack of food production in the  Philippines. A lot of answers could be given here,  

typhoons have harmed the entire agriculture  industry, global commodity prices, and also a  

lack of government intervention. When the onion  prices had risen to prices higher than meat,  

the government acted to import at least 21,060  metric tonnes, which they hoped to see a decline  

to about 150 to 200 pesos a kilo. Why is it a  lack of government intervention? Well, a lot of  

claims have been given that these are not enough.  And to begin with, these happened at a later date  

when the onion supply had already broken down.  They should have done it at an earlier date,  

in anticipation of this happening. That  is also why the National Budget of the  

Philippines for 2023 had seen a substantial  increase in agriculture spending, as they may  

have already anticipated this to be happening, but  likely failed to act in key areas such as onion.

Finally, one of the most important factors we  should understand is why did the Philippines  

post a 7.6, four-decade high GDP growth  despite rising inflation. Yes, it should  

have been difficult to post a high GDP growth  in the face of inflation, simply because high  

consumer prices will reduce consumer spending,  leading to a decrease in demand for goods and  

services. Making business production slower,  whilst making borrowing costs more expensive as  

evidenced by interest rates. The biggest factors  cited had been due to a low unemployment rate. And  

credits also goes to a robust private sector,  which keeps consumer spending up despite the  

inflation rate. The unemployment rate as of the  time of writing is at 4.2 percent, which is the  

lowest that we could find from 1986 to today. But  anyway, What do you think? Thanks for watching!