The decline of inflation rate in the country from an average of 4.6 in 2011 to 3.2 per cent in 2012 will obviously benefit consumers, according to Philippine Amalgamated Supermarkets Association Inc. president Steven T. Cua since it preserves their ability to buy goods and services.
At the same time, benign inflation is advantageous to businesses, too, Cua adds. It is expected to encourage the banking sector to keep interest rates low to keep the cost of money affordable while it sustains the expansion of various industries.
Price stability encourages businesses to invest in order to improve productivity so that they can stay competitive and prosper without steadily having to raise prices.
The 3.2 percent inflation was also the lowest experienced since 2007, when the rate slowed to 2.9 percent due to the global financial crisis.
The annual average core inflation also slowed to 3.7 percent in 2012 from the 4.3 percent recorded the previous year.
The slowdown in inflationary trends is attributed to a strong peso and the availability of enough commodity supplies in the Philippines.
UP Economics Professor Benjamin Diokno said that price risks this year would could come from oil prices and “more damaging than usual” natural calamities, which might exert greater pressure on food prices.
Food takes up the bulk of household budgets. Due to the higher taxes imposed on the prices of cigarettes and alcoholic beverages, these items may contribute to inflation “to a limited extent,” the economist added.
Also, wages are not expected to drive up inflation because of large surplus labor, he said.
“Inflation will continue to be low as long as the peso remains strong and oil prices won’t rise wildly,” Cid L. Terosa of the University of Asia and the Pacific predicted.
For their part, retailers said prices had been “tame” for the last few years because of tight competition and consumer sensitivity, which kept prices stable.
According to bylife.wordpress.com, sustained low inflation is self-reinforcing. If businesses and individuals are confident that inflation is under long-term control, they do not react as quickly to short-term price pressures by seeking to raise prices and wages. This enforces the low inflation regime.
Photo: from chartherct.com
