What is cost-push inflation, and how has it affected the Philippine economy in recent years?
Answer (1)
Cost-push inflation happens when the cost of production inputs like raw materials, labor, or energy increases, causing businesses to raise prices of goods and services. This type of inflation is not caused by people buying too much, but by rising costs of making the product.In the Philippine setting, a good example was in 2022, when the price of fuel and imported goods surged due to the Russia-Ukraine conflict and global supply chain issues. Since the Philippines imports a lot of oil, fertilizer, and wheat, the prices of these essentials rose sharply. As a result, transportation fares went up, food became more expensive, and even electricity bills increased.When jeepney drivers had to pay more for diesel, they asked for fare hikes. Supermarkets raised prices because delivery costs went up, and bakeries increased the cost of bread because flour prices soared. This shows how one increase—like in fuel—can spread across the economy, causing cost-push inflation.Unlike demand-pull inflation, which can be controlled by slowing down spending, cost-push inflation is harder to fix because reducing demand does not lower the cost of oil or imported goods. If the government responds by increasing spending to support the poor, it might actually worsen inflation.The Bangko Sentral ng Pilipinas (BSP) sometimes faces a difficult decision: Should it raise interest rates to fight inflation, even if the cause is outside our control? That’s why government subsidies, oil price monitoring, and better food production are also important tools to reduce cost-push inflation in the country.In short, cost-push inflation in the Philippines often comes from global events, and it hits especially hard when we rely on imported goods. Managing this kind of inflation needs a mix of smart monetary policy and strong government support for local industries.
