DIMENSIONS

OF INFLATION

PRICE INCREASE
The

continuing increase in general

price level of commodities are called
INFLATION.
Inflation is a problem in which
many countries in the world
experience and face.

CAUSES OF INFLATION
COST

PUSH
The increase of the production cost of
firms leads to price increase. Income in
wages, purchase of raw materials and
machineries, and the desire to have more
profit are the main reasons why the price
of the commodities increases, particularly
if the production ask for high payment for
their services.

DEMAND PULL
The

demand-pull inflation happens if the

sectors desire to buy products and
services more than the available supply in
the market. In short, it is the condition
where aggregate demand is more than
aggregate supply.

STRUCTURAL INFLATION
When

the government implements new

economic policy like tax reform, the result
is price increase.

REASONS FOR INFLATION

Some

people believe that price increase is

a sign that the economy is developing.
DEVALUATION refers to the decrease in
the value of peso compared to a foreign
currency like the US dollars.

PEOPLE WHO BENEFITED FROM

INFLATION
Debtors
People

without fix income

Speculators

PEOPLE WHO HURT FROM

INFLATION
Creditors
People

with fix income

People who save

MEASURING THE PRICE INCREASE

To be able to study the price change, the
government assign and select products to be
included in the basket of goods or market
basket of goods, usually purchased by an
average family for a specific period of time.
From the market basket of goods, a price
index is formed. It represents the total and
average change in price of all commodities.
The price index depends on what
commodities would be examined.

Price

Index is the number that compares

the prices of present year to the prices of
base year.
Consumer Price Index(CPI) measures the
average percentage in the change of retail
prices in the commodities usually
purchased by consumers, particularly the
urban families.

Cost

of Living is the amount of money

needed to purchase the basic commodities
which is necessary to survive.
Purchasing Power of Peso (PPP) prices of
goods and services that a peso could buy
a current prices.

THE REASONS AND SOLUTIONS OF

INFLATION
REASONS

RESULTS

POSSIBLE
SOLUTION

1. Monopoly and
cartel

Price is manipulated
and controlled

Enforce penalty to
the members of
cartel

2. Loan payment

The amount is not

utilized for the
development of the
industries

Set aside a small part

of the national
budget for debt
services

3. Import
dependence

Oversupply of
imported products

Utilize and maximize

the local resources

4. Excess money in
the circulation

Increase in demand

Improve a tight
money policy

THE REASONS AND SOLUTIONS OF

INFLATION
REASONS

RESULTS

POSSIBLE
SOLUTION

5. Export orientation

Shortage of supply in
the local market

Give priority to the

needs of the local
market

6. High production
cost

Decrease in supply

Increase production
by maximizing the
use of resources

7. Middleman

The price of goods is

increasing

Impose price control