INFLATION

Group 2

WHAT IS INFLATION?

In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.The percentage change in the value of the Wholesale Price Index (WPI) on a year-on year basis.

Causes of InflationDemand pull inflationa rise in general prices caused by increasing aggregate demand for goods and services.

Cost-Push Inflation -When output declines because of cost pressure on producers there will be a shortage in output markets and prices will rise as a result, ceteris paribus, meaning all else constant. -Prices may also rise as a result of uncertainty about future market conditions.

Cost push inflation can be caused by many factors

Rising wagesImport pricesRaw Material PricesProfit Push InflationDeclining productivityHigher taxes

Effects of InflationPositiveModerate inflation enables adjustment of wagesInflation enables adjustment of relative pricesInflation can boost growthDebt relief by reducing the real level of debt

NegativeHigh prices of day-to-day goods people tend to spend lessHigh inflation creates uncertainty and can wipe away the value of savingsvery weak economic growthHoarding

Negative EffectPrice increases lead to higherwage demandsSocial unrestInflation can disrupt business planningUnemploymentLead to speculative lending and borrowinghigher interest rates

Inflation figurecountry/regiontypeperiodmonthly basisyearly basisCPI AustriaAustriacpijanuary 2015-1.179%0.646%CPI BelgiumBelgiumcpifebruary 20150.411%-0.397%CPI BrazilBrazilcpijanuary 20151.239%7.137%CPI CanadaCanadacpijanuary 2015-0.161%0.975%CPI ChileChilecpijanuary 20150.075%4.533%CPI ChinaChinacpijanuary 20150.306%0.901%CPI Czech RepublicCzech Republiccpijanuary 20150.081%0.081%CPI DenmarkDenmarkcpijanuary 2015-0.537%-0.077%CPI EstoniaEstoniacpijanuary 2015-0.412%-1.276%CPI FinlandFinlandcpijanuary 2015-0.688%-0.157%CPI FranceFrancecpijanuary 2015-1.002%-0.378%CPI GermanyGermanycpijanuary 2015-1.125%-0.378%CPI Great BritainGreat Britaincpijanuary 2015-0.858%0.316%CPI GreeceGreececpijanuary 2015-1.384%-2.837%CPI HungaryHungarycpijanuary 2015-0.225%-1.479%CPI IcelandIcelandcpifebruary 20150.681%0.819%CPI IndiaIndiacpijanuary 20150.395%7.173%CPI IndonesiaIndonesiacpifebruary 2015-0.362%6.290%CPI IrelandIrelandcpijanuary 2015-0.791%-0.595%CPI IsraelIsraelcpijanuary 2015-0.865%-0.475%CPI ItalyItalycpifebruary 20150.281%-0.186%CPI JapanJapancpijanuary 2015-0.194%2.383%CPI LuxembourgLuxembourgcpifebruary 20151.681%0.091%CPI MexicoMexicocpijanuary 2015-0.090%3.066%CPI NorwayNorwaycpijanuary 2015-0.073%1.999%CPI PolandPolandcpidecember 2014-0.324%-0.886%CPI PortugalPortugalcpijanuary 2015-1.413%-0.393%

Summary of current inflation percentage by country or region

CPI- consumer price index (often viewed as a countrys most important inflation figure)HICP- harmonized consumer price index (is used to compare inflation within Europe)

CPI RussiaRussiacpijanuary 20153.836%14.950%CPI SlovakiaSlovakiacpijanuary 2015-0.122%-0.427%CPI SloveniaSloveniacpijanuary 2015-1.284%-0.503%CPI South AfricaSouth Africacpijanuary 2015-0.090%4.430%CPI South KoreaSouth Koreacpifebruary 2015-0.018%0.515%CPI SpainSpaincpijanuary 2015-1.606%-1.319%CPI SwedenSwedencpijanuary 2015-1.051%-0.206%CPI SwitzerlandSwitzerlandcpijanuary 2015-0.431%-0.485%CPI the NetherlandsThe Netherlandscpifebruary 20150.494%0.100%CPI TurkeyTurkeycpijanuary 20151.102%7.241%CPI United StatesUnited Statescpijanuary 2015-0.471%-0.089%HICP AustriaAustriahicpjanuary 2015-1.343%0.537%HICP BelgiumBelgiumhicpjanuary 2015-2.123%-0.634%HICP Czech RepublicCzech Republichicpjanuary 2015-0.082%-0.082%HICP DenmarkDenmarkhicpjanuary 2015-0.598%-0.342%HICP EstoniaEstoniahicpjanuary 2015-0.405%-0.530%HICP EurozoneEuropehicpjanuary 2015-1.561%-0.617%HICP FinlandFinlandhicpjanuary 2015-0.738%-0.132%HICP FranceFrancehicpjanuary 2015-1.126%-0.401%

Summary of current inflation percentage by country or region

Summary of current inflation percentage by country or region

HICP GermanyGermanyhicpjanuary 2015-1.290%-0.520%HICP Great BritainGreat Britainhicpjanuary 2015-0.858%0.316%HICP GreeceGreecehicpjanuary 2015-1.177%-2.759%HICP HungaryHungaryhicpjanuary 2015-0.154%-1.367%HICP IcelandIcelandhicpjanuary 2015-1.133%-0.052%HICP IrelandIrelandhicpjanuary 2015-0.735%-0.369%HICP ItalyItalyhicpjanuary 2015-2.500%-0.510%HICP LuxembourgLuxembourghicpjanuary 2015-1.145%-1.145%HICP PolandPolandhicpjanuary 2015-0.320%-1.034%HICP PortugalPortugalhicpjanuary 2015-1.488%-0.365%HICP SlovakiaSlovakiahicpjanuary 2015-0.123%-0.513%HICP SloveniaSloveniahicpjanuary 2015-1.198%-0.708%HICP SpainSpainhicpjanuary 2015-2.170%-1.457%HICP SwedenSwedenhicpjanuary 2015-1.099%0.354%HICP the NetherlandsThe Netherlandshicpjanuary 2015-1.244%-0.669%HICP TurkeyTurkeyhicpjanuary 20151.207%7.211%

Inflation Rates in Asia

Country1999200020012002200320042005200620072008200920102011Indonesia2911.511.96.66.110.513.26.39.94.85.15.4Iran301615.316.415.513.515.817.125.613.511.822.5Thailand2.42.11.60.61.82.84.55.12.25.5-0.93.33.8Taiwan0.41.30.5-0.2-0.31.72.311.83.5-0.911.4

Source: CIA World Factbook - Unless otherwise noted, information in this page is accurate as of January 1, 2011

Country1999200020012002200320042005200620072008200920102011China-1.30.4-0.81.24.11.81.54.85.9-0.755.5Japan-0.8-0.7-0.9-0.3-0.1-0.30.30.11.4-1.4-0.7-0.3South Korea0.82.32.83.63.62.82.22.54.72.834Philippines6.8563.13.15.57.66.22.89.33.23.84.8

Source: CIA World Factbook - Unless otherwise noted, information in this page is accurate as of January 1, 2011

Latest Philippine Inflation Rate

In Philippines, the most important categories in the Consumer Price Index are: food and non-alcoholic beverages (39 percent of total weight); housing, water, electricity, gas and other fuels (22 percent) and transport (8 percent). The index also includes health (3 percent), education (3 percent), clothing and footwear (3 percent), communication (2 percent) and recreation and culture (2 percent). Alcoholic beverages, tobacco, furnishing, household equipment, restaurants and other goods and services account for the remaining 15 percent. This was last refreshed on Wednesday, March 4, 2015.

Comparison of the Past Inflation Rates of the Philippines Note:Annual variation of consumer price index (CPI) in %.Source:National Statistics Office.

21

Policy RecommendationsMonetary Policymonetary policy is the most important tool for maintaining low inflation.

Supply Side Policies- Supply side policies aim to increase long term competitiveness and productivity.

Fiscal Policy- This is another demand side policy, similar in effect to Monetary Policy. Fiscal policy involves the government changing tax and spending levels in order to influence the level of Aggregate Demand.

Wage Control- Wage growth is a key factor in determining inflation. If wages increase quickly it will cause high inflation.

EXCHANGE RATE 1 (P PER US$)

CONSUMER PRICE INDEX (2006=100)

130.1 134.0 134.2 135.0 135.2 135.8 136.8 139.5 140.8 140.9 141.0 140.8 140.5 National Capital Region 124.4 126.4 126.3 126.9 126.8 127.9 128.6 130.5 131.8 131.4 131.4 131.0 130.7 Outside National Capital Region 131.9 136.3 136.7 137.5 137.8 138.3 139.4 142.4 143.6 143.9 144.0 143.9 143.6

INFLATION RATE (%)3.2 3.0 2.1 2.7 2.9 3.3 4.1 4.1 4.9 4.4 4.3 3.7 2.7

National Capital Region 2.9 1.6 -0.1 1.1 1.1 1.9 2.6 3.2 4.4 3.5 3.6 2.4 1.6

Outside National Capital Region 3.2 3.3 2.7 3.1 3.4 3.8 4.6 4.5 5.0 4.7 4.5 4.0 3.0

Cordillera Administrative Region 3.6 3.4 2.2 2.1 2.5 2.3 3.4 3.7 4.7 4.5 4.2 4.3 2.9

Region I - Ilocos Region 1.7 2.3 2.1 1.9 3.0 3.4 3.9 4.5 4.8 5.2 4.7 4.1 3.2

Region II - Cagayan Valley 2.5 3.4 3.2 3.1 3.1 3.8 4.9 4.1 4.8 4.2 3.9 3.3 2.1

Region III - Central Luzon 3.5 2.7 2.0 1.9 2.6 3.1 4.4 3.6 4.2 4.2 3.7 3.4 1.9

Region IV - A - CALABARZON 2.7 2.6 1.9 2.8 2.9 3.5 4.5 4.0 4.8 4.2 4.2 3.2 2.4

Region IV - B - MIMAROPA 3.1 2.6 1.9 2.5 2.8 2.4 3.1 4.5 5.5 4.9 4.6 4.5 3.8

Oct

44.7979

Dec

44.075143.8318

Sep Nov

PHILIPPINES

PHILIPPINES

INDICATOR 2012 a

42.2288 43.7673 44.9514

2013 a

42.4462

SepAug

2013

AugNov

43.554643.1825 44.104343.8639

2014 a

44.3952

TABLE 27 - Exchange Rate, Consumer Price Index and Inflation Rate, Philippines: 2012 - December 2014

Dec

44.6878

Oct

2014

Region V - Bicol Region 2.8 3.5 2.3 3.4 3.7 4.3 5.4 5.3 6.6 5.6 5.4 5.2 3.6

Region VI - Western Visayas 4.1 3.8 3.1 3.3 3.4 3.5 4.6 4.7 5.2 5.1 4.8 4.8 3.6

Region VII - Central Visayas 5.2 4.9 3.4 3.3 3.3 3.9 4.6 5.0 5.2 5.1 5.1 4.9 3.9

Region VIII - Eastern Visayas 3.0 4.3 3.7 4.8 5.1 5.4 7.2 7.0 7.7 6.3 6.2 5.8 4.1

Region IX - Zamboanga Peninsula 2.7 4.3 3.9 4.4 4.5 5.4 5.7 5.6 5.5 5.4 5.4 4.6 4.0

Region X - Northern Mindanao 4.2 4.4 4.5 5.1 5.0 4.7 5.1 4.5 4.7 4.0 4.0 3.5 2.5

Region XI - Davao Region 2.5 3.2 3.4 3.4 3.4 3.5 3.3 3.6 4.0 4.0 4.3 4.1 3.8

Region XII - SOCCSKSARGEN 2.7 3.7 3.8 4.4 4.5 4.6 5.0 5.2 6.2 5.1 4.7 4.1 3.9

Caraga 4.3 3.9 3.0 3.6 4.0 4.4 5.1 5.3 5.8 4.8 4.5 4.1 3.4

Autonomous Region in Muslim

Mindanao 3.1 3.4 3.5 3.5 3.7 4.0 4.0 4.1 4.4 4.3 4.2 4.0 3.8

a Average for the year.1 Per Bankers' Association of the Philippines reference rate.Sources of basic data: Bangko Sentral ng Pilipinas. Philippine Statistics Authority.

Definitions:Consumer Price Index - the statistical measure of change in the retail prices of a fixed basket of goods and services purchased by an average household.Inflation rate - growth rate in the Consumer Price Index computed as follows:

CPI (Current Year)Inflation rate = -------------------------- - 1 X 100

CPI (Previous Year)