Republic of the Philippines

BATANGAS STATE UNIVERSITY

COLLEGE OF ACCOUNTANCY BUSINESS, ECONOMICS
AND
INTERNATIONAL HOSPITALITY MANAGEMENT
ACCOUNTANCY AND MANAGEMENT ACCOUNTING
DEPARTMENT UNDERGRADUATE SCHOOL
CITE Building, Pablo Borbon Main 1, Rizal Avenue, Batangas City
____________________________________________________________________________

POSITION PAPER

IN

ECO 310 (ECONOMIC DEVELOPMENT)

TOPIC: IS INFLATION MORALLY WRONG?

Presented to:

Asst. Prof. INESIO H. SADIANGCOLOR

Presented by:

Hernandez, Luraine E.

Inciso, Princess Shaira S.

Lacerna, Keith Louisse S.

 TABLE OF CONTENTS

Executive Summary…………………………………………………………………..1

Introduction……………………..………………………………………………..…...2

Issues and Research Questions…………………….…………………………………5

Method Considerations….……………………………………………….……………8

Theory and Analytic Framework…….………………………………….……………9

Analysis……………….………………………………………………………………..11

Conclusion……………………………………………………………………………..12

Recommendation/s……………………….……………………………………………15

References/Source………………………………………….………………………….16

Appendices…………………….……………………………………………….……….18
 I. EXECUTIVE SUMMARY

This paper's objectives are to discuss how inflation becomes morally wrong as it affects
different types of sectors. It will present the theories, issues and research methods, analytic
framework, analysis, conclusions and recommendations.

Inflation, as defined by the Oxford dictionary, is an increase in the general price level of
goods and services. It is also defined as a period of inflation which is characterized by steady rise
in the general price for goods and services over a period of time accompanied by falling volume
of production. People usually feel inflation when their income does not have an equivalent
purchasing power.

Inflation is the gradual increase in the general level of prices for goods and services in
the economy. Prices rise as time passes, although there might be some short periods of
disinflation and even deflation during which prices tend to decrease. It would also take more
dollars to buy the same product.

The government declares that they are fighting inflation although most people feel that
they have not yet achieved their objective. Before inflation can be eliminated, people need to
know what it is and how it affects their daily lives.

I. INTRODUCTION
 Inflation is the rise in the prices of goods and services during the business cycle of an

economy. It is expressed as a percentage of the average annual increase in the price level of

goods and services. Inflation reduces the purchasing power of money, which means that it takes

more dollars to buy the same amount of goods and services as it did previously. Inflation is

defined as an increase in the prices of goods and services throughout the economy. A positive

percentage change in a price index is used to express it. A price index is a metric that tracks

changes in the average level of prices paid by consumers for a basket of goods and services over

time. Many factors cause inflation. Let's discuss two of the most common ones: demand-pull and

cost-push. Demand-pull conditions occur when consumers pull prices up by increasing their

demand for products. The most common example is when a really good movie comes out and

everyone wants to see it at once. This increased demand for tickets causes ticket prices to go up.

Cost-push is when a major cost increase in some aspect of production causes prices to rise. One

example is when oil producers can't keep up with demand, causing higher oil prices that drive up

prices of just about everything else as well.

Inflation is not a new occurrence. It has been extensively examined throughout the years,

and its effects have been explored. These contribute to positive and negative effects on the

economy. In most cases, inflation favors the producers of goods. They make more money

because they can sell their items at greater prices. During periods of inflation, investors and

entrepreneurs are given more incentives to invest in productive activities. As a result, they

benefit from higher returns. When producers obtain the appropriate funding, they generate more

goods and services. Therefore, inflation causes an increase in product/service output. As output

rises, so does the demand for the different production components, including labor. Employment

and income rise in response to inflation. If a company's earnings increase hence inflation, it
might pay out dividends to its shareholders. Wherefore, during inflationary periods, shareholders'

dividend income may increase. Inflation reduces the buying power of money. As a result, if the

borrower pays an interest rate that is lower than the inflation rate, he benefits from the process.

The real value of the money returned by the borrower is less than the value of the money

borrowed.

On the other side, inflation also brings negative effects on the economy. An individual's

true income is the buying power of his monetary earnings. In other words, real income equals

money income divided by the price level. This means that persons on fixed incomes, such as paid

workers, pensioners, and the like, will see a decrease in real income. In other words, their

purchasing power will dwindle. Profits for company owners and entrepreneurs rise as a result of

inflation. On the other hand, people in fixed-income categories see a decrease in their actual

income. As a result, income disparity becomes more pronounced over this period. Inflation raises

the prices of commodities, raw materials, and factor services. As a result, the government must

spend more money to execute any investment project initiated during the planning stage. If the

government fails to raise new financial resources through savings or revenue, the entire planning

process is thrown off. Assume that prices are rapidly increasing. People are unclear about how

much prices will climb in the next weeks or months. In such instances, many individuals begin to

make speculative investments. Assume that rising prices become a recurring feature of an

economy. People begin to choose commodities over money at such times since the true worth of

money would diminish in the future. In addition, people begin to favor now consuming over

future consumption. As a result, the widespread impulse to save begins to wane. As people's

desire and capacity to save decreases, so does the quantity of money available for additional

investment. Therefore, the total impact on the economy's capital accumulation is negative
because capital accumulation in an economy is dependent on investment growth. We said that

the borrower's profit from inflation when it is favorable. Therefore, lenders risk losing money

during these periods. They get a sum with less buying power than the lent amount. Furthermore,

if the cost of raw materials and manufacturing variables rise, so will the prices of export

commodities. As a result, their demand in foreign markets may decrease, resulting in a decrease

in the country's export income.

All in all, we have this clear understanding about how inflation happens as well as its

impacts on every citizen. It favors more people who belong in the business field, and creates

difficulties for common Filipino people by not considering their purchasing power. Moreover,

we came up with the side that Inflation is morally wrong. As we go along with this study, the

researchers want to enlighten minds and share thoughts and information about “Is Inflation

Morally Wrong?”

II. ISSUES AND RESEARCH QUESTIONS

 Because of the high cost of commodities, growing inflation has been a major subject in

recent months. How are you keeping up with the rise in basic commodities costs and an

unpredictable economy? Inflation is making headlines, and many people are concerned. On the

one hand, rising costs are putting a deeper dent in households' wallets than in previous years.

Price increases are focused on a few goods and may be transient. Workers, particularly low-

income workers, have also enjoyed robust salary rises that outstrip price increases, implying that

their overall standard of living is increasing. Rather than fretting about short, restricted price

increases, authorities should focus on keeping the labor market recovery on track while lowering

the costs of critical products and services that are still unaffordable, even if they are not getting

more expensive right now.

Inflation increases our cost of living. As our cost of living rises, so does our ability to

acquire specific products and services, as the value of the Philippine Peso falls. The Bangko

Sentral ng Pilipinas (BSP) manages and handles inflation in the Philippines, with the main

purpose of regulating and stabilizing the rate of inflation so that it does not impact the Filipino

people's standard of living and the economy runs smoothly. The BSP's major goal, according to

Section 3 of Republic Act 7653, or the New Central Bank Act, enacted in 1993, is "to preserve

price stability favorable to a balanced and sustainable expansion of the economy." It must also

promote and preserve monetary stability and the convertibility of the peso." A change in the

government ruler also has an impact on the inflation rate's growth or drop. If projects and

programs impacting importation, exportation, employment, production of goods and services,

and other external elements such as security and order, among others, are not regulated and

maintained, the inflation rate may alter dramatically. Significant inflation increases were

observed during the administrations of then-Presidents Ferdinand Marcos, Cory Aquino, and
Gloria Arroyo beginning in the 1970s, which were influenced by a variety of factors such as peso

depreciation, massive government spending, skyrocketing world oil prices, pernicious debt-

driven growth policies, crony capitalism, multiple coup attempts, a global rice crisis, and a series

of typhoons. According to economist JCPunongbayan, the country's high inflation rates under

the Rodrigo Duterte government are caused by more than simply rising global oil costs. Other

variables, according to Rappler, include the impact of the tax reform bill on the price of

petroleum goods, the weakening peso, and people's predictions of inflation.

We were recently presented with genuinely alarming news: the Philippines inflation rate,

which measures how quickly prices rise, hit a stunning 6.4 percent in August (Punongbayan, J.,

2018). This dramatic increase in the rate is not only the greatest in 9.4 years, but it also

outperformed the government's maximum prediction of 6.2 percent and is significantly higher

than the government's 4 percent objective for 2018. Furthermore, figures reveal that the

Philippines' gigantic 6.4 percent rate is also the highest among ASEAN nations. What may be the

cause of this dramatic change in comparison to other surrounding countries? And what action

may possibly be taken to at least correct and normalize our country's inflation rate?

This study aims to know and assess how Inflation became morally wrong as it affects

different types of sectors. Specifically, the study sought to answer the following:

1.What do you think are the possible reason for the drastic increase of inflation rate

in the Philippines?

2. How does inflation affect Filipino people as they are classified as low-income earners?

3. Does inflation only serve as a favor for those business proprietors?

4. Do you have any suggestions on how the government will remediate the drastic increase in the

inflation rate?
III. METHOD CONSIDERATIONS
 The objective of this section is to provide and present the fundamentals of

research methodology, as well as the selection of the most relevant research method for the

study. Moreover, the study was developed using a qualitative research design. A thorough

investigation was also conducted in order to gather various data to support the current study.

Gay (1992: 217) defines descriptive research as the act of describing something. Data is

gathered for the purpose of testing hypotheses or answering questions in research which is

related to the current state of the research subject. The method things are determined and

reported in a descriptive study. In addition, descriptive study is scientific research that

methodically deals with a certain area of population and characterizes an event, phenomena, or

fact.

It was a descriptive study, therefore it gathered specific and factual data to characterize

existent occurrences. It accurately and truthfully describes the issue or area of interest in a

systematic manner. It enabled the researchers to explain and comprehend the behavior in great

detail. This study was correlational in that it required the use of multiple statistical tools to

determine the degree to which the variables were related to one another.

The goal of using descriptive technique is to come up with the nature of a condition as it

occurs during the study period and to investigate the reason or causes of a particular state. The

researchers chose this study to have first hand data from the respondents in order to come up

with logical and good conclusions and recommendations for the study.

This paper begins by providing an introduction about the main topic which talks about Is

Inflation Morally Wrong?. Followed by formulating issues and questions that are interconnected

to the said topic, and why and how it matters.

IV. THEORY AND ANALYTICAL FRAMEWORK

 In this study, the following theories will serve as grounds that will guide the discussion

and interpretation of the obtained results.

According to the research of Remesh (2021), If inflation becomes too high, it can cause

people to severely curtail their use of the currency, leading to an acceleration in the inflation rate.

High and accelerating inflation grossly interferes with the normal workings of the economy,

hurting its ability to supply goods. Hyperinflation can lead to the abandonment of the use of the

country's currency leading to the adoption of an external currency.

Economists believe that very high rates of inflation and hyperinflation are harmful, and

are caused by an excessive growth of the money supply. Views on which factors determine low

to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to

fluctuations in real demand for goods and services, or changes in available supplies such as

during scarcities. However, the consensus view is that a long sustained period of inflation is

caused by money supply growing faster than the rate of economic growth.

In the 21st century, most economists favor a low and steady rate of inflation. In most

countries, central banks or other monetary authorities are tasked with keeping their interbank

lending rates at low stable levels, and the target inflation rate of about 2% to 3%.Central banks

target a low inflation rate because they believe that high inflation is economically costly because

it would create uncertainty about differences in relative prices and about the inflation rate itself.

A low positive inflation rate is targeted rather than a zero or negative one because the latter could

cause or worsen recessions; low (as opposed to zero or negative) inflation reduces the severity of

economic recessions by enabling the labor market to adjust more quickly in a downturn, and

reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy.
V. ANALYSIS
 Inflation is the rate at which the general level of prices for goods and services rises and

results in a decrease in the purchasing power of a country's currency. It's key to calculating using

the Taylor rule. Inflation is calculated using the yearly change in the consumer price index (CPI),

which was first introduced in 1919. CPI data between 1913 and 1919 is estimated using a variety

of methods and sources. Since the founding of the United States in 1776, the highest year-over-

year inflation rate observed was 29.78 percent in 1778. In the period of time since the

introduction of the CPI, the highest inflation rate observed was 19.66 percent in 1917. Before the

introduction of the U.S. Federal Reserve by the Federal Reserve Act in 1913, the U.S. economy

grew in fits and starts. Severe shocks and panics followed periods of rapid inflation and growth

in asset prices. The inflation rate for consumer prices in the Philippines moved over the past 60

years between 0.7% and 50.3%. For 2020, an inflation rate of 2.6% was calculated.

During the observation period from 1960 to 2020, the average inflation rate was 8.6% per

year. Overall, the price increase was 12,172.92 %. An item that cost 100 Peso in 1960 was

charged 12,272.92 Peso in the beginning of 2021.

In only a very few countries, the price increase is that high. The Consumer Price Index

(CPI) of 50.3% in 1984 means that compared to the previous year all prices have increased by an

average of 50.3%. In comparison to other countries, the drastic price increases are no longer on

average. Usually this is a sign of political and economic turmoil.

In the 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. The

inflation rate for consumer prices in the Philippines moved over the past 60 years between 0.7%

and 50.3%. For 2020, an inflation rate of 2.6% was calculated. During the observation period

from 1960 to 2020, the average inflation rate was 8.6% per year. Overall, the price increase was

12,172.92%.

Higher inflation never leads to higher levels of income in the medium and long run,

which is the time period they analyze. This negative correlation persists even when other factors

are added to the analysis, including the investment rate, population growth, schooling rates, and

the constant advances in technology. Inflation not only reduces the level of business investment,

but also the efficiency with which productive factors are put to use. Soaring food prices

disproportionately hurt the poor in developing countries. This is especially true in regions where

people spend a majority of their income on food and rely on a specific food product. Although

some farmers and food producers are benefitting from greater profits, the net effect of higher

prices is a rise in the number of the poor. According to Zoellick, “the trends towards the 1 billion

are worrisome. Global food prices are rising to dangerous levels and threaten tens of millions of

poor people around the world. In their time period of study, higher inflation never leads to higher

levels of income. This negative correlation persists even when other factors, such as investment

rates, population growth, schooling rates, and technological advancements, are included in the

analysis. Inflation reduces not only the amount of business investment but also the efficiency

with which productive factors are used. Lower-income workers, on the other hand, tend to feel

only the negative effects of inflation. Their rent is increasing. Their heating oil prices are rising.

Their grocery bills rise. And higher prices have no place in their already strained budgets.
Furthermore, with stimulus payments and child-tax credit payments long gone, many people

have depleted their financial reserves. Food price increases disproportionately harm the poor in

developing countries. This is especially true in areas where people spend the majority of their

income on food and are reliant on a single food product. Although some farmers and food

producers benefit from higher profits, the net result of higher prices is an increase in the number

of poor people. According to Zoellick, "the trends toward one billion are concerning." Global

food prices are reaching dangerously high levels, threatening tens of millions of poor people

worldwide.

Probably the strongest argument in favor of the notion that the poor are less affected by

inflation is that inflation can, under some circumstances, lower the real value of debt. If prices go

up 7%, and your income goes up 7%, all of a sudden your debts — which typically are fixed in

nominal value — are worth 7% less.

This mechanism is potent, but it assumes that real wages keep pace with inflation. Right

now real wages are falling, and with higher inflation may continue to do so. Furthermore, many

poor people roll over their debts for longer periods of time. Repaying those debts will eventually

be cheaper in inflation-adjusted terms, but not anytime soon. The effects of inflation are

numerous and complex. It cannot be said definitively that inflation hurts some income groups

more than others. Yet it’s clear that, for the poor, inflation is no trivial matter.

VI. CONCLUSIONS
 Rising food costs will have different consequences on different households (ADB 2008).

On the one hand, certain households may gain from increasing pricing. Other households, on the

other hand, may suffer as a result. Rising food costs may result in more revenue for net

producers. However, rising food costs will disproportionately affect the urban and rural poor,

who are food consumers rather than producers. In this perspective, it would be useful to

investigate the number of impoverished people who stand to lose as a result of such price hikes.

It is critical for policymakers in developing nations to assess the net impact of food price

increases on poverty. Furthermore, concerns about rising food costs are growing, since such an

increase has the potential to erode the achievements in poverty reduction and human

development that emerging nations have made over the previous decade or so.

The study examined the effects of rising food costs on the average quality of living and

poverty in the Philippines using household surveys and comprehensive pricing data. Over the

years 2003–2006, increased food costs had a dominant influence on poverty, according to the

study. Over the time, the intensity of poverty increased by 16.8 percent, while the level of life

decreased by around 1%. According to the study, the drop in living standards caused by food

price rises was most severe among the lowest of the poor. Worst case scenario, these low-income

households may be forced to reduce their spending on health care and education for their

children.

As a result, safety precautions will be necessary, particularly for the poorest of the poor,

in order to mitigate the negative impact of rising food costs.

The study developed a different price index for the poor dubbed the price index for the

poor, which takes into consideration the low's spending habits. The most extensively used
Laspeyres price index is calculated by assigning larger weights to items eaten mostly by the

wealthy. In this regard, the research concluded that the PIP, rather than the Laspeyres price

index, might be a more relevant price index for analyzing the influence of price increases on

poverty. The inflation rate encountered by the poor was greater than the official rate based on the

Laspeyres price index by 0.2, 0.6, and 5.6 percentage points, respectively, in 2005–06, 2006–07,

and 2007–2008. According to the PIP, the inflation rate encountered by the poor has been lower

than the official inflation rate in the previous period.

In addition, the study discovered that poor customers are hurt worse by inflation than

non-poor consumers. The poor, in particular, are extremely sensitive to fluctuations in food

prices, particularly basic foods such as rice. According to estimates of the price elasticity of

poverty per commodity, a 10% increase in food costs will result in an additional 2.3 million poor

people, while a 10% increase in nonfood prices will result in an additional 1.7 million poor

people. A 10% increase in rice prices will push an extra 0.66 million people into poverty, while a

10% increase in gasoline costs will push an additional 0.16 million people into poverty.

Finally, the analysis discovered that rising food costs have been the primary cause of

current high inflation in the Philippines. Consumption of nonfood things has played a relatively

minimal influence. Thus, it is best to aim for government initiatives toward food price

stabilization. Furthermore, given these present developments, monetary policy may be

ineffective in combating growing inflation. Such measures may cause the economy to go into a

recession, further harming the poor.

Inflation is produced by an inability of aggregate supply to keep up with a rise in

aggregate demand. In order to regulate aggregate demand, inflation can be controlled by

increasing the supply of goods and services while decreasing money incomes. The numerous
approaches are often classified into three categories: monetary measures, fiscal measures, and

additional measures.

From the different monetary, fiscal, and other policies, it is evident that the government

should implement all measures at the same time in order to manage inflation. Inflation is a

hydra-headed monster that must be battled with all the tools at the government's disposal.

VII. RECOMMENDATION/S

Based on the conclusion derived from the study, the following recommendations are offered

for consideration;
 Governments may use this research to better understand people's experiences with inflation and

to develop a possible solution to the negative effects of inflation.

Economists may use this to better understand the reasons behind inflation and its impact on

everyone, and to do further research about it.

Households may use this to have a good understanding of inflation and how to protect

themselves from inflation-related problems that might affect them heavily.

Future researchers may use this as a reference for more informative and in-depth studies in the

area of inflation. 

VIII. REFERENCES/SOURCES
● Weller, C. (2021, November 08). How Worried Should We Be About Inflation? Forbes.

https://www.forbes.com/sites/christianweller/2021/11/08/how-worried-should-we-be-

about-inflation/?sh=110f6f013a7d

● (DOC) Research Paper - Inflation Rate in the Philippines | Robert Sulit and Joshua Noel

Cañeda. (n.d.). Academia.edu. Retrieved April 26, 2022, from

https://www.academia.edu/39549482/Research_Paper_Inflation_Rate_in_the_Philippine

● Has Inflation Hurt the Poor? Regional Analysis in the Philippines. (2008, May 18). Asian

Development Bank. Retrieved April 26, 2022, from

https://www.adb.org/sites/default/files/publication/28370/wp112.pdf

● VP, R. (2021, March 31). A Study on Inflation. SSRN.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3816410

● Pettinger, T. (2021, October 8). Who are the winners and losers from inflation?

Economics Help. Retrieved April 26, 2022, from

https://www.economicshelp.org/blog/145181/inflation/who-are-the-winners-and-losers-

from-inflation/

● inflation.pdf - Google Drive

● World Bank Document

● Philippines Inflation Rate - March 2022 Data - 1958-2021 Historical - April Forecast.

(n.d.). Trading Economics. Retrieved April 27, 2022, from

https://tradingeconomics.com/philippines/inflation-cpi

● Inflation rates in the Philippines. (n.d.). Worlddata.info. Retrieved April 27, 2022, from

https://www.worlddata.info/asia/philippines/inflation-rates.php
 ● Cowen, T. (2021, December 15). Analysis | Who Does Inflation Harm More, the Poor or

the Rich? The Washington Post. Retrieved April 27, 2022, from

https://www.washingtonpost.com/business/who-does-inflation-harmmore-the-poor-or-

the-rich/2021/12/15/7de946b2-5db8-11ec-b1ef-cb78be717f0e_story.html

● Controlling Inflation: 3 Important Measures to Control Inflation. (n.d.). Your Article

Library. Retrieved April 27, 2022, from https://www.yourarticlelibrary.com/macro-

economics/inflation-macro-economics/controlling-inflation-3-important-measures-to-

control-inflation/31093

IX. APPENDICES