Making more out of inflation

AS the Philippine economy steps on a nascent recovery from the Covid-19 pandemic, the headline inflation remains high at 4.6 percent in October 2021 from 4.8 percent in September 2021. Except for June 2021, headline inflation rests well above the 2- to 4-percent target band of the Bangko Sentral ng Pilipinas (BSP). Could this high inflation just be transitory or the beginning of a longer-term problem? This is one of the most important questions for the global economy now as central bankers and policymakers are divided.

Inflation is generally defined as the rate of increase in prices of goods and services over a given period of time, which effectively erodes the value of money. Since the trust on money is within the domain of central banks (CBs), CBs are always on the lookout to keep inflation steady at a certain level so that consumers don't notice changes in prices too much. Through their monetary policies, most CBs balance price increases by around 2 percent per year. A steady inflation rate is a good thing as it signifies a well-performing, productive and developing economy. However, if inflation rates go a lot over than the target band most of the time, this indicates spiraling economic problems.