Why do central banks avoid making public statements that are too direct about inflation fears?
A. Because they don’t have full data on inflation
B. Because it violates monetary policy laws
C. Because public fear can actually cause inflation
D. Because inflation is not a serious concern
Answer (1)
The correct answer is letter C. Because public fear can actually cause inflationCentral banks, like the Bangko Sentral ng Pilipinas or the U.S. Federal Reserve, are careful with their public messages because expectations can shape reality. If people hear that inflation is coming, they may rush to buy goods before prices rise, or workers may demand higher wages. This creates demand-pull inflation, where the fear of inflation causes people to spend more, which leads to higher prices.This is why central bank leaders—such as Jerome Powell in the U.S. or past BSP governors in the Philippines—often speak in carefully chosen words. The goal is to maintain public confidence and avoid panic. Even in school settings, we can relate: if students panic before a big test because of rumors, they might overreact, just like how markets react to inflation fears.
