INFLATION SURGES BEYOND BSP EXPECTATIONS | Marvin Germo

INFLATION SURGES BEYOND BSP EXPECTATIONS

By: Marvin Germo | May 13, 2018

Inflation in the Philippines

For the past five years, the Philippines have experienced an up tick in inflation, which affects a great deal of current and incoming businesses in terms of costs and margins. As most of us know, the general effect of inflation is that it decreases the value of money and makes it more expensive to buy goods and services. Inflation is also a major concern for the working class who will end up getting the tail end of the upward surge in prices.

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ICON 2018  —  May 26, 2018
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Inflation is at its highest in five years

According to the Philippines Statistics Authority (PSA), the prices of goods and services increased to 4.5%, the highest in over five years. The fastest rise in prices could evidently be seen in the cost of food, drinks, clothing, tobacco, transportation, furniture and dining. This is much faster than what the 2% – 4% range that the BSP projected.

The Philippines is still one of Asia’s fastest-growing economies, despite of this potential risk that may dampen our consumption driven economy and reduce the common Filipinos ability to save more money.

Over the past 12 months there has been great pressure for the  BSP to tighten their monetary policy and increase interest rates. However, the cause of the increase in inflation is from the supply side and not the demand side. Meaning the 0.25% increase done by the BSP really wont address inflation.

 

The other side of inflation

To balance things out, inflation is a natural result of growing economy as businesses continue to import items in an environment where the US Dollar is already relatively high. Should the economy continue to grow at a very fast rate, this can compensate for the possibility of higher prices.

Where should you invest?

Please remember that inflation hit 0.7% in November 2015. We are a great way off from that figure today. What does that mean? Savings accounts, time deposits, bonds, bond funds will perform very bad as inflation will just beat down whatever interest earnings that will come from this products.

Because of this, my recommendation is that you focus on more variable income streams such as stocks, real estate, crypto currencies, forex and other avenues that will give you more than 5% yield so you at least at the bare minimum beat inflation.

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