Really!? High inflation means "robust" economy? by Lacierda

Below, quoted in full, is a Facebook post by Edwin Lacierda. Edwin is a Filipino lawyer. He was a member of the Philippine Cabinet and Presidential Spokesperson of President Benigno S. Aquino III.

[QUOTE STARTS HERE.] Very recently, Finance Secretary Sonny Dominguez justified that a high inflation rate is a sign of a robust economy. After all, if the economy is growing, it means that goods and/or services are moving at an accelerated pace, and it is inevitable that prices of goods will rise. That is the conventional wisdom.

There are many theories on the relationship between economic growth and inflation. As it turns out, the conventional wisdom may not always be the case.

Case in point:

In the first two quarters of 2013, the Philippine GDP hit 7.8% and 7.9% respectively, the highest numbers attained by the previous Aquino administration. During that same period, the inflation rate was as follows: [Please note that as of 6 March 2018, the Philippine Statistical Authority (PSA) rebased the Consumer Price Index (CPI) from 2006 to 2012]

2013 Inflation rate (%) [Source: PSA]

January - 2.8
February - 2.9
March - 2.7
April - 2.2
May - 2.3
June - 2.5

Average inflation rate = 2.56%
What these figures prove is that a growing economy does not always result to higher inflation. In fact, on the contrary, you have instances of high inflation with little or slow economic growth. What those figures above show is that we can grow the economy while managing the inflation rate. We have seen similar instances in other economies. The UK had a sustained low inflation and economic growth between 1993 to 2006. So is the Chinese economy since 2000 excepting 2008.

It all depends on how the economic managers of the country view the relationship between growth and inflation. If it is a consumption spending economy, what are the levers to pull? Is it the money supply? If it is manufacture or production driven, what other factors do we consider?

But in our case, what we have seen and as evidently dismissed by the administration is that since the TRAIN Law was implemented last January 2018 resulting to higher prices, inflation rate has risen.

Here are the figures:

2018 Monthly inflation rate (%): [Source: PSA]

January - 3.4
February - 3.8
March - 4.3
April - 4.5
May - 4.6
June - 5.2

How the [P]resident and his economic managers handle inflation will require a frank assessment of the underlying reasons and not simply pooh pooh the effects of the TRAIN Act.

What is certain is the people are reeling from the effects of soaring rising prices especially those who do not pay income tax in the first place such as the poorer sectors of our society, or the minimum wage earners. And any benefit to the taxpayers derived from the lowering of the income tax brackets will be or has been negated by the rising prices. [QUOTE ENDS HERE.] SOURCE:

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