Which of the following scenarios is an example of asset inflation?
A. The general prices of all consumer goods go up
B. The value of houses and real estate rises faster than average
C. The peso weakens against the dollar
D. Minimum wage increases due to labor protests
Answer (2)
The correct answer is letter B. The value of houses and real estate rises faster than averageAsset inflation refers to a situation where the prices of specific assets—like houses, land, stocks, or gold—increase rapidly, often faster than the prices of everyday goods. It doesn’t affect groceries or clothes but rather the value of investments and properties.In the Philippines, real estate prices in Metro Manila have surged in recent years. For example, condo prices in Bonifacio Global City (BGC) or Makati have doubled or tripled within a short span. This doesn’t always reflect inflation in food or transport. It’s more about people investing in properties, expecting prices to rise even more.Asset bubbles can form when investors rush to buy, causing prices to rise beyond the real value. But if demand suddenly drops, the bubble bursts—causing prices to crash. This happened during the Asian Financial Crisis in the late 1990s when many property values in Southeast Asia fell rapidly.Asset inflation is dangerous when it creates false confidence and leads to debt. For instance, if someone buys an overpriced condo thinking its value will double soon, they may end up with a big loan and a property that’s no longer worth what they paid. That’s why asset inflation is closely watched by financial regulators.
The correct answer is B. The value of houses and real estate rises faster than average.Asset inflation refers to the increase in the prices of assets like real estate, stocks, or bonds, rather than general consumer goods or services. When the value of houses and real estate rises faster than average, it is an example of asset inflation. A describes general inflation (consumer goods prices rising).C refers to currency depreciation.D is about wage increases, which may lead to inflation but is not asset inflation.
