Undeniably, in 2018, one of the matters that alarmed the public was the increasing inflation – it shows the increase in the prices of goods and basic commodities in the Philippines.
It was at 4.5% in April and it continued to increase reaching 6.7% in October 2018. A lot of Filipino people undeniably felt the effect of the increasing inflation in the country.
Several personalities also stressed that the increasing inflation is not only in the Philippines but as well as in other countries.
In December 2018, the inflation went down to 5.1% and it decreased further to 4.4%. Recently, the Philippines’ inflation rate for the month of February 2019 has been released.
Philippine as a LEDC have continuously tried to get out of this situation of large population living in poverty/being poor. Though inflation would be very helpful for the economy in many cases, reaching such a high inflation rate of 6.7% may only affect normal purchases and consumer spending of local Filipinos. As a result of these locals that have a low income, they would spend less as they may not be able to afford and luxuries or even necessities. Therefore, people would save more, and governments would have a budget deficit due to the decrease of consumer spending.
Which due to this reason, the Philippine economy reached its high inflation rate during September/October 2018 at the rate of 6.7%. Starting from December 2018, the Philippine economy has dropped massively from 6.7% to 6%. Though there has been such a huge slump in the economy, the inflation rate is continuously decreasing till today, at the rate of only 3.3 %; not even half of the highest inflation rate since October 2018.
The figure above illustrates a business cycle, which would perfectly illustrate Philippines’ current economic situation. Philippine has experienced a peak and is now experiencing the recession stage of this business cycle.
During this period of time, it is very likely that the unemployment rate would rise. Businesses would likely sack employees during this period as less people are willing to spend. Therefore, businesses’ revenue and profit would definitely be affected, to prevent too much lost, businesses would try to decrease any costs possible, which includes decreasing numbers of employees. Unemployment would then be a huge economic consequence such as losses in real GDP, unequal distribution of income. Also, it would also affect personal issues such as loosing self-esteem leading to a decrease in consumer confidence and may lead to recession.
In conclusion, as the Keynesian supply diagram shown above, governments would have to do some corresponding actions such as demand-side policies to push the aggregate demand curve to the right and pull the economy out from recession.