ECONOMICS REACTION PAPER

Article: PH's long battle vs inflation far over HSBC

MANILA, Philippines - The 4.3% inflation rate in March may have been tamer than forecasts, but an economist for Hong Kong and Shanghai Banking Corporation (HSBC) said he remains cautious as global oil and food prices remain a threat.

 "The battle against inflation is far from over, and we expect the [Bangko Sentral ng Pilipinas] to continue tightening at the next meeting," Sherman Chan, HSBC's economist for ASEAN, said in a report on Tuesday.

He said that they expect the BSP to announce another 25 basis points rake hike when the monetary officials meet on May 5 as global oil and food prices will "trickle down the Philippine economy, leading to further acceleration in inflation over the next 6 months."Monetary officials hiked rates by 25 basis - the first since 2009 - last March 24.
In the first quarter of 2011, food prices accelerated to 2.3% quarter-on-quarter, compared with the previous increase of 1.3%.

In March, both food and core items showed sharp upticks, pushing the 4.3% inflation to the upper half of the BSP's target band of 3% to 5%."We believe there is some way to go before we see the peak in the current cycle, especially in light of the recent spike in global oil prices as well as a continued surge in global food prices," Chan wrote.He also noted that the impact of the disasters in Japan could "further cloud the region's growth outlook."

"It is too early for the BSP to breath a sigh of relief," he wrote.



Reaction:

Inflation is an inevitable property of any economy in the world. In simple words, inflation is the rise of general level of prices. However, inflation is a much more complex phenomenon than simply the increase of prices.

The first reaction to the term inflation, in most cases, is negative because generally increasing of prices. For me, when it comes to inflation, I have the two sides of reaction which one is positive and other is negative. It is positive because increasing of inflation rate means decreasing of unemployment which means it is a good for us and it indicates a healthy economy but ,as I observe especially for Filipinos, it is in different way. Increasing of prices is such a problem for us. For others would say that if there will be increasing of prices, there must be increasing of wages for Filipinos to accept inflation.

As an example and a situation for myself, I would admit that I rather go to sales in malls than going to buy regular-priced products. But I realized, it would be better to go with regular-priced products for it creates stable circumstances for everyone especially when we talk about employment and wages.

Another way to look at inflation is that it is an increase of the quantity of money in relation to the trade of goods in a society. Banks, like BSP, fight inflation by decreasing money supply, and by setting high interest rates. In addition, governments can institute wage and price controls to fight excessive inflation rates. However, this method has several negative outcomes; price control distorts the overall functioning of nation’s economy because it encourages decreases in products’ quality, shortages, etc. May the Philippine government have the right things in dealing with this and good outcomes afterwards.