Inflation by Pace

The speed of inflation can vary a lot. In some cases, prices increase by a
manageable 2% a year, encouraging individuals to invest their money to
maintain its value. In other cases, inflation can happen catastrophically fast, or
even go into reverse.

Creeping Inflation
Creeping, or mild, inflation occurs when prices rise slowly. According to the
Federal Reserve, when prices increase by 2% or less, it benefits economic
growth. This kind of mild inflation makes consumers expect that prices will
keep going up, which boosts demand. Consumers buy now in order to beat
higher future prices, and so mild inflation drives economic expansion. For that
reason, the Fed sets 2% as its target inflation rate.

Walking Inflation
This type of inflation is faster than creeping inflation, but not as fast as
galloping or hyperinflation. It is harmful to the economy because it heats up
economic growth too quickly. People start to buy more than they need in order
to avoid tomorrow's much higher prices. This increased buying drives demand
even further, and suppliers often can't keep up. More importantly, neither can
most people’s wages. As a result, you can be priced out of common goods
and services.

Galloping Inflation
When inflation rises to 10% or more, it can be very damaging to the
economy.1 Money loses value so quickly that business and employee income
can't keep up with costs and prices. Foreign investors, in turn, avoid the
country where this occurs, depriving it of needed capital. The economy
becomes unstable, and government leaders lose credibility. For this reason,
avoiding galloping inflation is a key objective of many central banks.

Hyperinflation
Hyperinflation occurs when prices skyrocket by more than 50% per month.2 It
is very rare. In fact, most examples of hyperinflation occur when governments
print money to pay for wars. One of the most extreme examples is Hungary,
where in 1945, prices doubled every 15 hours. Venezuela has been fighting a
bout of hyperinflation since the early 2010s.

Deflation
Inflation can also go into reverse; this is a situation in which prices are
decreasing. This can happen, for instance, when an asset bubble bursts. This
is known as deflation. Once deflation starts, it is harder to stop than inflation. It
can be damaging to an economy because people will put off purchases
because they are waiting for lower prices.

That's what happened to the housing market in 2006. Deflation in housing

prices meant many people who had bought their homes a few years before
the decline found their house was now worth less than the value of their
mortgage. In fact, the Fed was worried about overall deflation during the
recession. That's because deflation can turn a recession into a depression. At
the height of the Great Depression, prices dropped by more than 10% in one
year.3

PH RECORDS LOWEST INFLATION RATE IN 2023, GOV’T TO CONTINUE

MEASURES TO PROTECT FILIPINO PURCHASING POWER – NEDA

JANUARY 5, 2024 – As the country’s inflation rate settled to its lowest level in
2023 last December, the National Economic and Development Authority
(NEDA) assured the public that the government is continuously monitoring
prices and inflation risks and implementing measures to protect the
purchasing power of Filipino households.

The Philippine Statistics Authority reported today that inflation for December
2023 further slowed down to 3.9 percent from 4.1 percent in November 2023,
bringing the full-year average inflation rate to 6.0 percent.

Inflation for most commodity groups either slowed down or retained their
previous rates during the month.

However, rice inflation rose to 19.6 percent during the month from 15.8
percent in November 2023. It was also the most significant contributor to
December 2023’s inflation with 1.7 percentage points (ppt), followed by food
and beverages services and housing rentals with 0.5 ppt each.

Thus, NEDA Secretary Arsenio M. Balisacan emphasized the importance of

Executive Order No. 50, which extended the Most Favored Nation (MFN)
reduced tariff rates for key agricultural commodities like pork, corn, and rice to
ensure sufficient food supply for Filipinos and prevent spikes in prices of these
commodities.

“Amid an uptrend in international rice prices and the expected negative impact
of the El Niño phenomenon, the Interagency Committee on Inflation and
Market Outlook will closely monitor the situation and propose further
temporary tariff adjustments if necessary. We will also push for trade
facilitation measures to reduce other non-tariff barriers. While our medium-
term objective to boost agricultural productivity remains, it is important to
augment domestic supply to ease inflationary pressures on consumers,
particularly those in low-income households,” he said.

Balisacan likewise noted that the El Niño phenomenon, which the Philippine
Atmospheric, Geophysical and Astronomical Services Administration
(PAGASA) expects to continue until May 2024, has added to the threat of
higher inflation.
He underscored the need to hasten the full implementation of the El Niño
National Action Plan (NAP), which seeks to increase the resilience of
communities against El Niño and guide government agencies in mitigating its
immediate effects.

“We must remain vigilant in monitoring the prices of our commodities and
continue to implement strategies to address short-term and long-term
inflation-related challenges,” Balisacan said.

These strategies, he added, include implementing timely deployment of trade

policy tools along with sustained investments in irrigation, flood control, supply
chain logistics, and climate change adaptation.

Why Should You Care about Inflation?

What would you do if the money in your wallet or bank account could buy less
and less every year? Would you spend more time thinking about how to get
the most out of your money while you could? Would you change what you
bought or how much? Would you keep money in your savings account?

Inflation affects everyone in the economy: workers, businesses, people on

fixed incomes, lenders and borrowers. For example, consumers need to keep
track of the prices of items they purchase. When inflation is high, they need to
spend more time shopping, looking for the best deals. Companies need to
think about how much to raise prices as it becomes costlier to produce their
products. Individuals will also act to protect their financial assets from rising
prices.

Inflation can also be very hard for people on fixed incomes. Inflation means
their incomes won't stretch as far as they could before, and people will have to
buy less. If inflation is moderate (prices are increasing by a little), they may
have to cut back on non-necessities like travel, movies, or eating out. If
inflation is high, they might have to cut back on necessities like utilities and
food.

Another problem caused by inflation is that it is unpredictable-that is, we

cannot perfectly know what inflation is going to be in the future. Interest rates
reflect in part what inflation is expected to be over the life of a loan. So
inflation that is higher or lower than expected can create "winners" and
"losers" because it shifts purchasing power between savers and borrowers. If
inflation is higher than expected, borrowers (debtors) win because they repay
the loan with less valuable dollars. However, if inflation is lower than
expected, savers (creditors) win because the loan repayment is worth more
as it reflects more valuable dollars.

Inflation affects all aspects of the economy, from consumer spending,

business investment and employment rates to government programs, tax
policies, and interest rates.
Understanding inflation is crucial to investing because it can reduce the value
of investment returns. With inflation rising recently after several years of
relative calm to its highest level in four decades, investors may benefit from
knowing the factors driving inflation, the impact on their portfolios, and steps
to consider as the investment landscape shifts.

https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/
Inflation
https://www.investopedia.com/terms/i/inflation.asp#toc-what-is-inflation\
https://www.forbes.com/advisor/personal-finance/types-of-inflation/