How do inflation and interest rates affect the decisions of Filipino consumers and small business owners?
Answer (1)
Inflation and interest rates are two of the most important factors that affect financial decisions for both consumers and small business owners in the Philippines. When inflation rises and interest rates change, people must adjust how they spend, save, or invest their money.For Filipino consumers, inflation means higher prices for everyday items like food, transportation, and electricity. If a person’s salary doesn’t increase at the same pace, their purchasing power goes down. For example, if you used to spend ₱1,000 for groceries every week but now you need ₱1,200 for the same goods, you might cut back on other expenses like mobile load or entertainment. People also avoid saving money in regular bank accounts when the interest earned is lower than inflation because it means their money is losing value.When inflation goes up, the Bangko Sentral ng Pilipinas (BSP) usually raises interest rates. This makes borrowing more expensive. For small business owners, this matters a lot. Imagine a sari-sari store owner who wants to borrow ₱50,000 to expand her inventory. If interest rates go up from 5% to 8%, the loan becomes harder to repay. As a result, some businesses delay expansion plans or cut back on hiring.Higher interest rates also affect customers who use installment payments to buy appliances or motorcycles. If monthly payments increase, people might delay buying. This lowers demand, which affects businesses.On the flip side, higher interest rates benefit savers. If time deposits or MP2 savings accounts offer better returns, some people will prefer to save rather than spend.In short, Filipino consumers become more cautious with spending during inflation, and small businesses face challenges in borrowing and planning. This shows how closely tied inflation and interest rates are to daily financial choices.
