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Friday, September 22, 2023

Keeping inflation in check

While waiting for my turn during one of my regular visits to my physician’s clinic, I met
another early bird, a friendly recently-retired school teacher who came all the way from

“Hindi ba kayo yung napapanood ko sa TV dati,” he greeted me. I replied that was
years ago. I had since transferred to the Bangko Sentral from which I had retired.
“Ah, BSP, e di kayo pala ang nag-iimprenta ng pera natin.”

I replied “Yes”. But more than just printing money, I explained that the Bangko Sentral
ensures that the money it prints maintains its value.

The BSP makes sure that every Juan and Maria’s hard-earned money (like the teacher’s
pension) continues to retain as much of its purchasing power as possible.

I explained that the Bangko Sentral does this by endeavoring to keep the inflation rate
low and stable.

I noticed that he knitted his eyebrows so I proceeded more slowly and tried to explain
inflation in simpler language.

The retired teacher and I are both members of media (me diabetes), and apparently
consult the same doctor, so I used terms which we commonly hear in the clinic.
Look at inflation like it is blood sugar, I explained to him.

A certain level of blood sugar is good for us. But a sugar level that is too high
(hyperglycemia) or too low (hypoglycemia) is bad for us. In fact, either extreme
condition can actually kill!

He nodded so I continued.

To maintain a healthy level of blood sugar, Dra. Thelma Crisostomo prescribes
medication, adequate exercise and proper diet.

She periodically adjusts our medication, (either increase or decrease or maintain the
type and dosage of medicines) depending on how our sugar level behaves.

Similarly, all the goods and services that we commonly buy and use have prices. The
rate at which this price increases over time is called inflation. In analogous terms,
inflation represents the level of sugar in our blood.

Too high inflation (hyper inflation) would make our money practically useless. Too low
inflation would discourage manufacturers to produce goods and our economy will slow

BSP Governor Nestor Espenilla, Jr. and his team at the Bangko Sentral are just like Dra.
Crisostomo, I said. It is their job to ensure that the economy stays healthy by keeping
the inflation rate low and stable.

They also have the equivalent of a medical kit. From this kit, the BSP team prescribes
“medicines”, singly or in combination to move inflation to within a target range.

To arrive at the proper prescription, which the BSP issues every six weeks, the BSP team
regularly analyzes and evaluates a mountain of economic data. They look at these data
like our doctor would read our laboratory results.

And in like manner, the BSP would write its prescription depending on its reading of the
economic environment.

The effect of these medicines is not immediate but is felt only after some time.
Just then, my name was called by the clinic staff and I had to excuse myself.
“Ay sayang. Ang dami ko pa naman sanang gustong itanong.”

Have we had a little more time, I would have told him about the different types of
inflation according to what caused it.

I would have told him that one type of inflation which is caused by too much demand
for goods is something which could be controlled by BSP-prescribed medicines.
But another time of inflation such as one caused by abrupt rise in the cost of a
commodity, like oil, needs to be referred to another specialist for co-management.

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