X 100 Price of Basket Goods & Services in Current Year Price of Basket in Base Year
X 100 Price of Basket Goods & Services in Current Year Price of Basket in Base Year
(Through the conduct of monetary policy) and those are included in the standard
basket of goods and services we consume.
The BSP’s primary mandate is to maintain price
stability conducive to a balanced and sustainable Inflation Rate
economic growth of the Philippine economy. - Annual percentage change in consumer
price index
- When you talk about price stability, BSP
must make sure that prices are stable. What Inflation
happens if there is no price stability? With - Sustained/continuous increase in the
the same amount of money that you have average prices of goods and services
today is no longer the same 10 years ago typically purchased by consumers
because of inflation. Meaning to say, you - We say ‘continuous” because the increase
will be able to buy fewer goods or services must be sustained. It’s not only for a day or
with your money today than 5 years or 10 a week, but it’s continuous.
years ago.
Preventing erratic changes in the inflation rate has HOW DOES THE BSP KEEP INFLATION LOW
several benefits: AND STABLE?
It enables households and firms to make - It is the BSP’s task to ensure that Money
better and informed decisions on Supply is neither too much nor too little.
consumption, investment, savings and
production Too Much Money Too Little Money
Higher inflation Deflation
When prices are stable, manufacturers are
Increased Demand for Reduced Demand for
protected against the increase in the prices Goods & Services Goods & Services
of raw materials. manufacturers can Productive and
therefore price their products at a Prices are Pushed
Economic Activities are
Upward
competitive price or at a price cheaper than Reduced
competitors. When people save more, more
funds are available for loans and greater - If there is too much money, inflation will
productive activities are promoted which will tend to increase
result to more job opportunities. This in turn - If there is too little money, there will be
will allow more Filipinos to get employed deflation
allowing them to have money to buy and - Inflation is not bad at all if production will
increase
satisfy their needs and wants.
- One of the reasons why that price will
Price stability preserves the value of our
increase because there are too few goods
money. If the value of our money is available while there is too much money in
preserved, we can buy the same amount of circulation.
goods and services with the same amount - Money has a price or cost as expressed in
of money. the interest rate.
Money Supply consists of: Nominal Interest Rate – is the interest rate
M1 or Narrow Money – consists of before taking inflation into account.
currency in circulation (or currency outside
Nominal Interest Rate – Interest Rate + Inflation Rate
depository corporations), peso demand
deposits or checkable deposits, traveler’s