INFLATIO

What is Inflation?
Inflation is defined as a sustained
increase in the general level of prices
for goods and services.
It is measured as an annual
percentage increase.
As Inflation rises, every dollar you own
buys a percentage of a good or
service.

Variations on Inflation

DEFLATION
Is when the general level of prices is falling.

HYPERINFLATION
Is unusually rapid inflation. In extreme cases,
this can lead to the breakdown of a nations
monetary system.

STAGFLATION
Is the combination of high employment and
economic stagnation with inflation.

Types of Inflation

DEMAND-PULL INFLATION
This theory can be summarized as
too much money chasing few goods. In
other words if demand is growing faster
than supply, prices will increase. This
usually occurs in growing economies.

COST-PUSH INFLATION
When companies cost go up , they need to
increase prices to maintain their profit
margins. Increased costs can include things
such as wages, taxes, or increased costs of
imports.

Causes of Inflation

Higher money supply produced by

the central bank.
A higher peso to dollar exchange rate
Higher input costs.
Adverse supply shocks
Monopolies and cartels
Paying our national debt

Effects of Inflation

Those who GAIN from

inflation
1. Borrowers- those who borrow money

tend to benefit from inflation because

the real value of their debts fall.

2. Business- that can raise prices much

higher than their costs of production. This
may benefit monopolies or big companies.

3. Speculators- these are people who look to

the future and sell their products
according to the price they expect in the
future.

Those who LOSE out on inflation

People with fixed incomes. When prices

rise and salaried people earn the same
incomes, they can buy fewer goods as a
result.
Creditors or those who lend money. The
real value of the amount they lend falls
when inflation rate is higher than they
expected.

People who save money in the banks.

People usually put their money in banks as
savings accounts or time deposits. After a
particular period, their money earns
interests, but the interest rate that banks
offer are usually lower than the inflation rate,
so savers tend to lose out.

Government Responds to
Inflation
Reducing aggregate demand
Tightening fiscal policy
1. Tightening monetary policy
2. Reducing aggregate supply
Reducing aggregate supply
3. Incomes policies
4. Improving the supply side.

Top 20 countries with

highest inflation rate
(2014)

PHILIPPINE INFLATION
RATE (2014)

Region

Dec -14

Region 4A

4.1

Region 3

Region 6

3.9

Region 11

3.9

Region 7

3.8

CAR

3.8

Region 2

3.6

Region 12

3.6

Region 1

3.4

NCR

3.4

Region 13

3.2

Region 9

2.9

Region 4B

2.5

Region 10

2.4

Region 5

2.1

Region 8

1.6

Region 6 Inflation Rate

Province

December 2014

Aklan

-0.1

Capiz

2.4

Guimaras

3.8

Iloilo

3.9

Negros Occidental

4.2

Antique

6.0

END.