Inflation has been on the rise in the Philippines this year. Last month the inflation rate reached 6.1%. That’s a lot of money that you’re losing every month!
You’ve been trying to save money for a while now. You’ve been careful about what you spend, and you’ve been putting money aside every month. But even with your best efforts, you can’t seem to keep up with inflation.
Every time you go to the store, the prices seem to be a little bit higher than they were the last time you went. And no matter how much money you save, it never seems to be enough.
So what can you do to beat inflation in the Philippines?
In this article, we’ll give you some tips on how to keep your money safe from inflation. But first, let’s discuss what inflation is, the factors that causes it, and how inflation affects you, me, and the Philippines in general.
What is Inflation?
Inflation is the rate at which the prices of goods and services increase over time. When inflation is higher, each peso you have buys less than it did in the past.
For example, let’s say that a can of soda costs P20 today. If inflation is 10% next year, that same can of soda would cost P22.
Inflation is measured as a percentage, and it’s calculated by looking at the prices of a basket of common goods and services. The most common measure of inflation in the Philippines is the Consumer Price Index (CPI).
The CPI measures the changes in the prices of a fixed basket of goods and services that are typically bought by consumers. This basket includes items such as food, housing, transportation, and utilities.
The CPI is released every month by the Philippine Statistics Authority (PSA).
Causes of inflation in the Philippines
There are many factors that can contribute to inflation in the Philippines.
High Cost of Food
One of the most common causes is the high cost of food. The prices of rice, eggs, and other staple foods have been rising steadily in recent years. This is due to a combination of bad weather and low production.
High Cost of Fuel
Another major cause of inflation is the high cost of fuel. When the price of crude oil goes up, the prices of gasoline and diesel also increase. This, in turn, raises the prices of other goods and services that use fuel as an input.
Weak Peso
Another factor that can contribute to inflation is the weak peso. When the peso is weak, imported goods become more expensive. This is because it takes more pesos to buy the same amount of foreign currency.
Excess Money Supply
Finally, inflation can also be caused by excess money supply. When there’s too much money chasing too few goods and services, prices go up.
The Central Bank of the Philippines (BSP) uses a tool called the Monetary Policy Rate (MPR) to control the money supply. The MPR is the interest rate that banks use when they lend money to each other.
When the BSP raises the MPR, it becomes more expensive for banks to borrow money. As a result, they lend less money to businesses and consumers. This reduces the amount of money chasing goods and services, and helps to control inflation.
The BSP has raised the MPR six times since May 2018, in an effort to control inflation.
How does Inflation affect you?
Inflation affects everyone differently. If your income doesn’t keep up with inflation, you’ll have less money to spend on things like food, housing, and clothes.
This can be a big problem for people on fixed incomes, such as retirees. If their pensions don’t increase along with inflation, they’ll have a hard time making ends meet.
Inflation can also make it difficult to save money.
Even if you’re careful about spending, the prices of goods and services will still go up over time. This means that your savings will buy less in the future than they do today.
For example, let’s say you have P100,000 in savings and inflation is 5% per year. After 10 years, your P100,000 will only be worth P75,769 in today’s prices.
Inflation can also make it difficult to borrow money.
When the prices of goods and services are increasing, lenders will typically want to charge higher interest rates on loans. This is because they want to be sure that they’ll get their money back, with interest, even if inflation goes up.
What can you do about Inflation?
There’s not much that you can do to completely avoid inflation. However, there are some things that you can do to protect yourself from its effects.
One thing you can do is to invest in assets that tend to go up in value when inflation is high. For example, you can invest in real estate or commodities such as gold and silver.
Another thing you can do is to make sure that your income keeps up with inflation. If you’re working, this means getting regular raises. If you’re retired, it means making sure that your pension increases along with inflation.
Finally, you can also try to reduce your expenses. This way, even if prices go up, you won’t feel the effects as much. For example, you can cook at home instead of eating out, or take public transportation instead of driving.
Inflation is a fact of life in the Philippines. However, by taking some steps to protect yourself, you can make sure that it doesn’t take a toll on your finances.
Can you live comfortably during high inflation?
While it is possible to live comfortably during high inflation, it is not easy. You will need to be very careful with your money and make sure that you are able to keep up with the rising prices.
It is also important to remember that high inflation can lead to some negative effects, such as higher interest rates and lower savings. So you will need to be prepared for these if you want to live comfortably during high inflation.
Effects of inflation in the Philippines
Inflation can have many different effects in the Philippines. Some of these effects are positive, while others are negative.
Positive Effects of Inflation in the Philippines
1. Inflation can help to boost economic growth.
Inflation can help to boost economic growth. This is because inflation can increase aggregate demand.
When aggregate demand is increased, businesses will produce more goods and services. This will lead to an increase in employment and incomes.
2. Inflation can also help to reduce the trade deficit.
Inflation can also help to reduce the trade deficit. This is because a lower exchange rate will make Philippine exports more competitive.
As exports become more competitive, businesses will be able to sell more of them. This will lead to an increase in foreign currency inflows.
3. Inflation can also help to reduce the budget deficit.
Inflation can also help to reduce the budget deficit. This is because inflation will reduce the value of government debt.
As the value of government debt decreases, the government will have to borrow less money. This will lead to a reduction in the budget deficit.
Negative Effects of Inflation in the Philippines
1. Inflation can erode the purchasing power of consumers.
Inflation can erode the purchasing power of consumers. This is because inflation will cause prices to rise.
As prices rise, the purchasing power of consumers will fall. This will lead to a decrease in their standard of living.
2. Inflation can also lead to higher interest rates.
Inflation can also lead to higher interest rates. This is because inflation will increase the demand for loans.
As the demand for loans increases, interest rates will rise. This will make it more difficult for businesses to borrow money for investment.
3. Inflation can also lead to higher taxes.
Inflation can also lead to higher taxes. This is because inflation will increase the government’s costs.
As the government’s costs increase, it will need to collect more tax revenue. This will lead to an increase in tax rates.
What the government is doing to combat inflation in the Philippines
The government is taking various measures to combat inflation in the Philippines.
1. The Bangko Sentral ng Pilipinas (BSP) has implemented an interest rate policy.
The BSP has implemented an interest rate policy in order to combat inflation. This policy involves increasing the interest rates on deposits and loans. The purpose of this policy is to discourage people from borrowing and spending money.
2. The BSP has also implemented a reserve requirement policy.
This policy requires banks to keep a certain percentage of their deposits in the form of reserves. The purpose of this policy is to reduce the amount of money that banks can lend.
3. The BSP has also implemented a quantitative easing policy.
This policy involves increasing the money supply. The purpose of this policy is to increase the amount of money in circulation.
4. The government has also implemented a fiscal policy.
This policy involves increasing government spending. The purpose of this policy is to increase aggregate demand.
5. The government has also implemented an expansionary monetary policy.
This policy involves increasing the money supply. The purpose of this policy is to increase the amount of money in circulation.
Tips to help you beat inflation in the Philippines
1. Keep your money in pesos.
The first thing you need to do is to make sure that all of your savings are in pesos. This may seem like a no-brainer, but a lot of people don’t think about it.
If you have money in other currencies, such as dollars or euros, you’re going to lose money every time the exchange rate changes. And with inflation on the rise, the peso is likely to lose value against other currencies.
2. Put your money into a high-yield savings account.
A high-yield savings account is a great way to protect your money from inflation. These accounts offer interest rates that are higher than the rate of inflation, which means that your money will grow even as prices rise.
3. Invest in government bonds.
Another option for protecting your money from inflation is to invest in government bonds. These bonds are issued by the government and they offer a fixed rate of interest.
4. Invest in real estate.
Real estate is another excellent inflation-proof investment. Prices for land and buildings tend to go up over time, so you can use your real estate investment to hedge against inflation.
5. Use index-linked investments.
Index-linked investments are a type of investment that is linked to an inflation index. This means that as prices go up, the value of your investment will go up as well.
Index-linked investments are available in a number of different asset classes, including stocks, bonds, and real estate.
6. Diversify your portfolio.
One of the best ways to protect your money from inflation is to diversify your investment portfolio. By investing in a variety of assets, you can minimize the risk that any one investment will lose value due to inflation.
7. Stay informed.
The best way to beat inflation is to stay informed about what’s happening in the economy. By keeping track of the latest news and economic data, you’ll be in a better position to make decisions about where to invest your money.
8. Have a plan.
Last but not least, it’s important to have a plan for how you’re going to deal with inflation. If you know how much money you’ll need to maintain your lifestyle, you can make sure that your savings are sufficient to cover the costs.
Inflation can be a challenge, but it’s important to remember that it’s not always a bad thing. In fact, in some cases, inflation can actually be beneficial.
For example, if you have a lot of debt, inflation can help you to pay it off more quickly. And if you’re saving for retirement, inflation can actually work in your favor, since your savings will be worth more in the future.
Of course, there’s no guarantee that inflation will always be positive. That’s why it’s important to have a plan in place so that you can protect your money no matter what happens.
These are just some of the ways you can beat inflation in the Philippines. By following these tips, you can make sure that your money is safe from the effects of inflation.
Investing during times of high inflation
Inflation can have a significant impact on investing. When prices are rising rapidly, it can be difficult to make money from investments that don’t offer protection against inflation.
For example, stocks may not provide the same returns as they would in a lower-inflation environment, and bonds may not be able to generate the same income streams. This can make it difficult to generate profits and preserve capital.
One way to protect against inflation is to invest in assets that are expected to maintain or increase their value over time. This includes investments such as gold, silver, and other precious metals, which are often seen as a safe haven during periods of high inflation. Other options include real estate and collectibles, which can also offer some protection against inflation.
Another way to protect against inflation is to invest in companies that are able to raise prices in line with inflation. This includes companies with pricing power, such as those in monopolies or oligopolies. These companies may be able to pass on price increases to their customers, which can help to preserve their profit margins.
Investing during periods of high inflation can be difficult, but it is possible to make money if you are careful about selecting the right investments. By investing in assets that are expected to hold their value or increase in value over time, you can help to protect your portfolio from the effects of inflation.
Additionally, by investing in companies with pricing power, you can also help to insulate your portfolio from the negative impacts of inflation.
Types of investments in the Philippines that are best suited for times of high inflation
When it comes to investing, there is no one-size-fits-all approach. The best investment strategy for you depends on your unique financial goals and objectives.
However, when inflation is high, certain types of investments tend to outperform others. Here are a few investment options in the Philippines that may be particularly well-suited for times of high inflation:
Philippines Government Securities
Philippine government securities, also known as treasuries, are one of the best investments to consider during periods of high inflation. These include T-bills, T-notes, and T-bonds, which are all issued by the Philippine government.
- T-bills: These are short-term government securities with maturities of one year or less.
- T-notes: These are medium-term government securities with maturities of two to seven years.
- T-bonds: These are long-term government securities with maturities of eight years or more
Mutual Funds
Another good investment option during periods of high inflation are mutual funds. This is because they offer the potential for higher returns than fixed-income securities, such as government bonds.
Some examples of mutual funds in the Philippines include:
- Philequity Peso Bond Fund
- Sun Life Prosperity GS Fund
- BDO Balanced Fund
- RCBC Savings Bank Equity Investment Fund
- First Metro Save and Learn Equity Fund
- ATRAM Top 100 Equity Fund
- Philam Strategic Growth Fund
- BPI Philippine High Dividend Equity Fund
- ALFM Growth Fund
- PAMI Danao Bond Fund
However, it is important to remember that mutual funds also come with higher risk.
Stocks
Another potential investment during periods of high inflation are stocks. This is because they offer the potential for capital appreciation, which can outpace the rate of inflation.
Some examples of stocks in the Philippines include:
- Ayala Corporation
- SM Investments Corporation
- JG Summit Holdings, Inc.
- Manila Electric Company
- Globe Telecom, Inc.
- PLDT, Inc.
- Metro Pacific Tollways Corporation
- Alliance Global Group, Inc.
- Aboitiz Equity Ventures, Inc.
- DMCI Holdings, Inc.
However, it is important to remember that stocks are also a more volatile investment, and thus come with higher risk.
Real Estate
Another option for investors looking to protect their purchasing power during periods of high inflation is real estate. This is because real estate typically increases in value at a rate that is equal to or greater than the rate of inflation.
Additionally, real estate can provide a source of rental income, which can also help to offset the effects of inflation.
Some examples of real estate investments in the Philippines include:
- Condominiums
- House and Lot
- Commercial Buildings
- Industrial Properties
- Agricultural Land
However, it is important to remember that real estate is a more illiquid investment, and thus may be more difficult to sell in a hurry.
Commodities
Lastly, another potential investment during periods of high inflation are commodities. This is because they can act as a hedge against inflation.
One example of a commodity that may be a good investment during periods of high inflation is gold. Gold is a physical asset that tends to maintain its value even in times of high inflation.
Additionally, gold offers the potential for capital appreciation, which can outpace the rate of inflation. However, it is important to remember that commodities are also a more volatile investment, and thus come with higher risk.
The above are some of the best investments to consider during periods of high inflation in the Philippines. Each one comes with its own set of risks and rewards, so it is important to do your own research and speak with a financial advisor before making any investment decisions.
Tips for protecting your investments from the effects of inflation in the Philippines
There are a few things you can do to help protect your investments from the effects of inflation.
1. Consider investing in a mix of asset classes.
This diversification can help to mitigate the effects of any one investment declining in value due to inflation.
2. Consider using peso-cost averaging when investing.
This technique involves investing a fixed amount of money at regular intervals, regardless of the current share price. Over time, this can help to average out the cost of your investment, and reduce the effects of inflation.
3. Rebalance your portfolio on a regular basis.
This will ensure that your investments are properly allocated and help you to stay on track to reach your financial goals.
Practical Tips for saving money during times of high inflation
Inflation can be a daunting prospect, especially for those on a fixed income or living paycheck to paycheck. Prices for basic necessities like food and shelter continue to rise, while wages remain stagnant. This leaves many people feeling like they are treading water just to keep their head above the rising tide of prices.
But there are some things that you can do to help offset the effects of inflation and keep your head above water. Here are a few practical tips:
1. Review your budget regularly and make adjustments as needed.
If you don’t have a budget, now is the time to create one. Sit down and track all of your income and expenses for a month. This will give you a good idea of where your money is going and where you can cut back.
Once you have a budget, review it regularly and make adjustments as needed. If prices for food or gas go up, you’ll need to adjust your budget accordingly.
To get started in budgeting, you can download my FREE budgeting templates or watch my budgeting videos on Pinay Investor YouTube Channel.
2. Cut back on unnecessary expenses.
Take a close look at your budget and see where you can cut back on expenses. If there are things that you can live without, eliminate them from your budget. This will free up money that can be used to offset the effects of inflation.
3. Shop around for deals.
When you’re buying necessities like food and gas, take the time to shop around for the best deals. There are often ways to save money if you’re willing to put in a little effort.
READ: 30 Online Shopping Tips to Get the Best Deals and Save Money
4. Start a garden.
One way to offset the rising cost of food is to start a garden. This way, you can grow your own fruits and vegetables and save money at the grocery store.
READ: How I Started Gardening and Growing Our Own Food At Home
5. Save money on your energy bills
If you’re not already doing so, start saving money on your energy bills. There are a number of ways to do this, such as weatherproofing your home or investing in energy-efficient appliances.
READ: How to Save and Earn Cashback Paying Utility Bills Online
6. Live below your means.
If you can, try to live below your means. This may mean making some sacrifices, but it will be worth it in the long run. When you live below your means, you’re saving money that can be used to offset the effects of inflation later on.
7. Make extra payments on your debts.
If you have any debts, make sure that you’re making extra payments on them. This will help you pay them off more quickly and save money in the long run.
8. Save money and build an emergency fund.
One of the best things that you can do to offset the effects of inflation is to save money. If you can, try to put aside some money each month into a savings account. This way, you’ll have a cushion to fall back on if prices start to rise.
Keep your emergency fund stocked with cash so you can avoid having to sell investments during periods of high inflation.
READ: How To Build Your Emergency Fund
9. Diversify your income streams.
Don’t rely on just one source of income. If you have the ability to, diversify your income streams. This can include things like investing in real estate or picking up a part-time job.
10. Consider leaving the city/country to find a cheaper cost of living.
If you’re really struggling to make ends meet, you may want to consider moving to the province or to another country with a lower cost of living. This is a big decision, but it may be worth it if you’re finding it difficult to cope with the rising cost of living in your current city/country.
11. Invest in yourself.
One of the best ways to offset the effects of inflation is to invest in yourself. Take some time to learn new skills or improve existing ones. A well-educated and skilled workforce is always in demand, no matter what the economy is doing.
12. Stay informed.
Keep up with the news and developments in the economy. This will help you understand what’s happening and make better financial decisions.
13. Stay positive.
It’s important to stay positive during times of economic turmoil. Remember that this is just a temporary situation and things will eventually get better.
Inflation can be a challenge, but there are things that you can do to offset its effects. By following these tips, you can ensure that you’re prepared for whatever the future holds.
FAQs about inflation in the Philippines
What is inflation?
Inflation is the sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power of money – a loss of real value in the medium of exchange and unit of account within the economy.
What is the general price level?
The general price level is the average price of all final goods and services produced in an economy during a period of time – usually a year. It reflects the prices that consumers pay for a typical basket of consumer goods and services.
What are the main causes of inflation?
Inflation is generally caused by a combination of excess demand in the economy and/or an increase in costs of production.
Excess demand can be caused by:
- The government printing too much money
- People hoarding money instead of spending it
- An increase in government spending
- An economic boom that is not matched by an increase in the production of goods and services
An increase in costs of production can be caused by:
- An increase in the cost of raw materials
- An increase in wages
- An increase in taxes
What are the effects of inflation?
Inflation has a number of effects on an economy.
Positive effects:
- Inflation may encourage spending and investment as people try to buy before prices go up further. This can lead to economic growth.
- Inflation may reduce the real value of debt, making it easier to repay.
- Inflation may help reduce unemployment by increasing demand in the economy.
Negative effects:
- Inflation can reduce the purchasing power of people’s incomes, leading to a decline in living standards.
- Inflation can lead to higher interest rates, which can discourage investment and spending.
- Inflation can cause uncertainty and confusion, making it difficult for businesses to plan ahead.
How is inflation measured?
Inflation is usually measured by tracking changes in the consumer price index (CPI). The CPI is a measure of the average change in prices paid by consumers for a basket of goods and services. The CPI measures prices at all stages of production: from raw materials to final retail sale.
What is the consumer price index?
The consumer price index (CPI) is a measure of the average change in prices paid by consumers for a basket of goods and services. The CPI measures prices at all stages of production: from raw materials to final retail sale.
How is the consumer price index calculated?
To calculate the CPI, prices are first collected for a basket of goods and services that represents typical consumer spending. This “market basket” of goods and services is then weighted according to the proportion of total spending that each item accounts for. The weights are updated periodically to reflect changes in consumer spending patterns.
The CPI is then calculated by taking the average of the prices of all the items in the market basket. This average is then compared to the average CPI for a previous period (usually 12 months). The difference is the percentage change in the CPI over that period.
How often is the CPI released?
The CPI is released monthly by the Philippine Statistics Authority.
How can we solve inflation in the Philippines?
The Philippines has a moderate inflation rate, which is caused by different factors such as the global prices of oil, local weather conditions, and the country’s political situation. The government has been trying to solve inflation by implementing different monetary policies. They have also been working on increasing production in order to meet the high demand.
What is the inflation rate for 2022 in the Philippines?
The inflation rate for June 2022 reached 6.1%, as reported by the Philippine Statistics Authority (PSA).
What is the expected inflation rate for 2023?
The average inflation rate from 2019 to 2023 is projected to be 3.5%. This means that prices are expected to increase by an average of 3.5% every year during this period.
However, it is important to note that inflation rates can vary from year to year and may be higher or lower than the projection.
Please refer back to the previous sections of this blog post for the answers to the following FAQs:
- What is the best way to beat inflation?
- How can we solve inflation in the Philippines?
- Is Philippines suffering from inflation?
- What are 3 ways to protect yourself from inflation?
How about you? What do you think of the rising inflation rate in the Philippines and how are you coping with it?