What is inflation?
According to the National Statistics Office (NSO), inflation is the rate of change in the Consumer Price Index (CPI) over a specific period of time (usually a month or a year). The CPI is most widely used in the calculation of the inflation rate and purchasing power of the peso. The CPI measures the changes in the price level of goods and services that most people buy for their day-to-day consumption.
Inflation is equivalent to a decline in the purchasing power of peso (PPP). The PPP gives an indication of the real value of the peso (how much it is worth) in a given period relative to its value in a base period. To get the PPP, you just need the reciprocal of the CPI multiplied by 100, or 1/CPI*100.
Contrary to common knowledge, low inflation does not connote that prices of commodities are falling. It means that prices continue to increase but at a slow rate.
Responsible Agencies
The National Statistics Office (NSO) and the Bureau of Agricultural Statistics (BAS) collect price data for the index. The BAS is responsible for collecting prices for agricultural commodities in Metro Manila and in the provinces. The NSO, on the other hand, collects prices for the non-agricultural commodities all over the country and all other commodities not covered by BAS. The computation of the CPI is the sole responsibility of the NSO.
Components of CPI
In the computation of the CPI, price quotations for goods and services that are included in a pre-determined or “fixed” market basket are being collected every first and third weeks of each month. The market basket refers to goods and services that are commonly purchased by consumers in a particular area. However, the market basket cannot and does not contain all the consumer goods and services in the economy but consists only of a sample of commodities which are used to represent all consumer goods and services in a given area.
Weights
The weights for the 2000-based CPI were derived from the expenditure data of the 2000 Family Income and Expenditures Survey (FIES), a nationwide survey that covered 41,000 households.
Core Inflation
On 3 February 2004, NSO released monthly core inflation rate alongside the existing headline inflation rate. Headline inflation refers to the year-on-year change in the overall Consumer Price Index (CPI). On the other hand, core inflation is the rate of change in the headline CPI after excluding selected food and energy items.
The introduction of core inflation rate has been approved by the National Statistical Coordination Board (NSCB) in its resolution dated 23 June 2003 through a TWG including NSO, the NSCB, the National Economic Development Authority (NEDA), the Statistical Research and Training Center (SRTC), the National Wage and Productivity Commission (NWPC), the Department of Trade and Industry (DTI), and the Bangko Sentral ng Pilipinas (BSP) . It aims to provide a complementary measure to the headline inflation and to serve as a better gauge of the overall state of the economy. This development is in line with the statistical practice of many industrialized and developing countries. The official methodology for computing core inflation also follows the common international practice of excluding food and energy-related components of the CPI. It also marked the start of inflation targeting of BSP which uses monetary policy tools to manage and stabilize prices in the market. Usually, the monetary action of the Monetary Board has a lag effect on the prices that could take months. Information about the general or underlying trend in consumer prices is a valuable input to economic policy, particularly monetary policy, which seeks to respond only to long term or permanent movements in prices and aggregate demand
What is really happening in prices?
Please note that inflation is more of a numerical value than anything else. It is objective and cannot be manipulated. To report it side by side with a subjective survey asking respondents what they felt a month earlier is I think inappropriate. However, the government releasing inflation data should be responsible in reporting the events that happened on the coverage of the report rather than describing the numbers itself. “Annual inflation in the National Capital Region (NCR) likewise continued to move at a slower pace of 6.8 percent in November from 8.0 percent in October due to the slower annual price increases in FBT, housing and repairs (H&R) and services index” is more of an empty statement. It could have been “prices of rice remained stable” or construction materials like cement, nails, etc is cheaper now by x%”.
