Understanding inflation: Price increase in context

Emmanuel J. Lopez - Philstar.com

MANILA, Philippines — We have heard of an impending acceleration in prices of basic commodities attributed to a surge in expenditure in the last two quarters. Many consumers worry. President Rodrigo Duterte, with 91 percent of the population expressing complete trust in him, should address this Filipino hope not to be affected by increase in prices.

Government is expected to assuage the unabated, burdensome price increase, that especially hit fixed-income earners. Whether a consumer's market basket can afford pricier goods or not, he remains vulnerable. Increased prices, however, are an offshoot of several indicators including political stability.

The populace views inflation as an "economic predator" out in the cold waiting to crush its victims. Inflation has more of its misgivings because it implicitly robs the consumer of purchasing power, giving lesser value to his money when at the helm of even a robust economy. Another effect of unmanageable inflation is an increase in interest rates, depriving the nation of a flourishing investment market.

Brighter side

The bright side is that the disadvantages of inflation outweigh its advantages. The aggregate effect of inflation makes it a measure of one's growth. Since money as a medium of exchange was invented in 600 BC, the trend has ever been increasing prices. In the modern economic era, trade has allowed people to benefit from development. This evolution, alongside the growth of world population, is enough to increase demand and pressure a firm's ability to cope with growing consumer needs, resulting in the occasional rise in prices here and abroad.

Price increase, as long as it within tolerable limits, is a measure of economic growth. It manifests the number of buyers demanding for product.  An increase in prices is joints taxes and death on the same boat of life's inevitables. As long as the quality of life can keep up with the level of prices, inflation's ill effects are insignificant. To say that growth and development can be achieved without any cost—real or nominal—is a myth.

Price increase, as long as it within tolerable limits, is a measure of economic growth

To say likewise that productivity can be without cost is inaccurate. There is a price to producing more with new resources employed. Growth and development can only be achieved with innovation and technology. Using only previous knowledge and resources prevents productivity leading to industrialization.

While it is right to demand from economic authorities to make sure consumers are able to handle the price increases, remember that inflation can well be a prelude to prosperity. The rise in prices is unstoppable and unrelenting, but it is what we have to pay in growth and development. Adam Smith, the "Father of Economics," once said: "There is no such thing as free lunch."



Emmanuel J. Lopez, Ph.D. is an associate professor at the University of Santo Tomas and the chair of its Department of Economics. Views reflected in this article are his own. For comments email: [email protected]


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