Private company finance head shares insight on: What caused the 6.4% inflation? - The Daily Sentry

Thursday, September 6, 2018

Private company finance head shares insight on: What caused the 6.4% inflation?

Composite photo of Jay Olos and image of Trends in Inflation Rate (from Facebook)

Spreading in social media like a wild fire is a lengthy post of netizen named Jay Olos who works for a Financing company within Asia, is a very detailed explanation on inflation affects the Filipinos.

Olos, shares his insights about the country’s recent inflation state, his explanation also gives clarity to the confusion brought by bothering reports from the media.

This post already went viral as it has reached 7.3K shares as of this writing.

Below is the complete Facebook post of Jay Olos:

While I’m quite saddened by the fact that Philippine inflation reached its nine-year high of 6.4% in August 2018, I’m more alarmed and deeply saddened by the fact that there are still too many Filipinos who are still financially illiterate, reactive, and pessimistic. So let me share here my insights about this recent inflation rise and how we should react about it.

What is inflation?

In layman’s terms, inflation refers to the increase in the prices of goods in an economy. There are basically two causes of inflation: 1) Demand-Pull inflation and 2) Cost-push inflation.

Demand pull inflation is when the overall demand for goods and services in an economy is greater than production or productive capacity of the economy. This is usually triggered by increase in money in circulation as a central bank’s measure. There’s a lot of money in circulation thereby increasing the populations buying power but there but lesser goods or services to purchase. Hence, the increase in price - which our teachers in economics back in high school and college have taught us.

Cost-push inflation occurs when there is an overall increase in prices in production consequently pushing the overall selling prices of goods and services. Typically this happens when there is an oil price hike as most industries use oil for production, increase in wages, increase in prices of imported goods necessary for production and consumption (e.g. PH is importing rice nowadays).*

What caused the 6.4% inflation?

According to the BSP governor himself, the spikes are due to the unfortunate confluence of cost-push factors and the elevated oil prices. Naturally, all other prices will go up. So definitely, this is not something that should be attributed to any local policy within an economy alone. Factored it with the soft increase in money supply by the BSP during first half of 2018 plus the price increase effects of the TRAIN law, then inflation definitely will increase. In short, the inflation of 6.4% is a combination of demand-pull and cost-push.

Is it a good sign? Or a bad sign?

We’ve been taught in schools that inflation or increase in prices would mean lower savings for every household or for every Filipino. That’s not necessarily true. If you look into the bigger scheme of things, inflation is actually a good indicator that the economy is working and heading upwards. We all envy those first world countries as having the best economies in the world and having the best quality of life. But we don’t usually realize the fact that the prices in those countries are way higher than the Philippines.

In short, inflation or higher prices might also be an indicator of higher economic activity and brighter economic prospect. The reasons for the 6.4% inflation are due to more positive factors like the passage of the TRAIN law, which most economist and business experts view as having a very positive impact in the Philippine economy in the long run, and the BSP’s move to stimulate spending, are good indicators that the economy is about to rise.*

On the other hand, the oil price increase from sources abroad should not be looked upon as a diminution of income to every local household. Rather, we Filipinos should use it to realize that these factors beyond our control should be managed by managing ourselves. We must stop wasting our time doing non-sense things. We must be valuing more our time and resources and start our journey towards a more empowered nation through savings, investments, and entrepreneurship.

We cannot be a progressive nation without an uptick in our economic activities. Sure, we should always manage our costs and expenses but at the end of the day, growth is generally driven by the topline growth.

So instead of whining about the inflation, you should ask yourself, “what can I do to help this economy’s topline growth? How can I surf on the waves of its growth and benefit from it as well?".

Screen-capped image of Mr. Jay Olos's Facebook post

Source: Jay Olos