• INFLATION: defined as a broadly based rise in the price

level. In other words, inflation is an ongoing rise in the

general level of prices of goods and services in an
economy over a period of time. In addition, if there is
inflation there is a general upward movement in the
prices of goods and services in an economy. The rate of
inflation can be measured using price index such as
wholesale price or consumer price and the like. In the
case of the Philippines, it uses the prices index to
measures changes in the price of goods and services
generally consumed by the public.
• Book ref: VIRAY, JR., AVILA-BATO, MALVEDA,
MACROECONOMICS Simplified. (2016). Anvil
Publishing, Inc. Mandaluyong City
 INFLATION
• Economic plans and policies are intended to improve the standards of living of
people. It means, among other things, the incomes that they have. It means that
the people should be able to buy better quality food, live in better houses, and
send their children to school, among other things.
• Inflation, however, negates the economic objective of improving the quality of
life of people.
• First, people who have fixed incomes are severely affected during
inflation. With increased prices, people who belong to this group
would be lose out because the income they receive now would be
able to buy less than before.
• Secondly, because of increased in price, benefits of pensioners from
the Social Security Systems (SSS) or the Government Service
Insurance Systems (GSIS) would result in a net loss to the pensioner.
• Creditors also lose out during inflation. The reason they lose out is
because the fixed amount of principal and interest they lent out would
now be valued less.
In most countries, central bank or other monetary authorities are
tasked with keeping interbank lending rates at low stable levels, and
the target inflation rate of at 2% to 3%. Central banks target a low
inflation rate because they believe that high inflation is
economically costly because it could create uncertainty about
differences in relative prices and about the inflation rate itself,
• Higher interest rates reduce the economy’s money supply
because fewer people seek loans. When banks make
loans the loan proceeds are deposited in
Bank accounts that are part of the money supply.
Therefore, when a person pays back a loan no other loans
are made to replace it, the amount of bank deposits and
hence the money supply decrease.
•
Book ref: Danilo F. Marcelo, Jr. DBA, macro economics (c2021), Unlimited Books Library Services & Publishing Inc. Intramuros,
Manila ISBN: 978-427-092-7
INFLATION
Objectives: understand what inflation is
- Discuss the different type of inflation
- Apply the concepts of inflation to current government issues and
evaluate the policies in curbing the inflation

- The term INFLATION is generally used to mean any sustained or

continuing increase in price..
- Inflation is not a monopoly of the Philippines.
- It is universal experience of all countries, both developed and
developing.
• UNDERSIRABILITY OF INFLATION
• Economic plans and policies are intended to improve the standards of
living of people.
• It means, among other things that the people should be able to buy
more given the incomes that they have. It means that the people
should be able to buy more, given the incomes that they have.

• It means that the people should be able to buy better quality foods, live
in better houses, and send their children to school, among ogther thins.
• INFLATION however, negates the economic objective of improving the
quality of life of people.
• First, people who have fixed incomes are severely affected during
inflation. With increased prices, people who belong to this group
would lose out because the income they receive now would e able to
buy less than before. Thus, their economic welfare is diminished.

• Secondly, because of increased prices, benefits of pensioners fom the

SSS or the GSIS would result in a net loss to the pensioner. Unless the
benefits received by the pensioners are adjusted to the inflation rate,
the pensioners would suffer a net loss.
• Creditors are also out during inflation. The reason they lose out is
because the fixed amount of principal and interest they lent out would
now be valued less. If interest rate charged by the creditor is 12 per
cent but the inflation rate is 20 percent, the net loss of the creditor
would be 8 percent.

• Much of the reason why the economic welfare of people deteriorates

during inflation is the depreciation in the purchasing power of the peso.
If the purchasing power of the peso depreciates, people would be able
to buy less.
Book reference: MACROECONOMICS, Danilo F. Marcelo, JR.DBA C2021