Importance Of Monetary Policy In The Philippines

“Why is Inflation Targeting Favorable as a Monetary Policy of the Philippines?”

Inflation and Monetary Policy Let us first defined what an inflation and monetary policy is. For an Economist, an inflation pertains as the rate of change of the mean prices of commodities (such as goods and services) that are generally bought by the consumers. It is usually well- defined as the annual percentage change of the Consumer Price Index or what we commonly called, the CPI. The Consumer Price Index or CPI depicts the average price of a basket of commodities (such as food products, clothing, water, electricity and other goods and services) consumed by an average consumer family for a given period of time. The price stability is said to exist if the inflation is stable and low. On the other hand, a monetary policy is a process implemented in governing the economy by means of controlling the supply of money and credit in the economy to safeguard the price stability of goods and services in the market.

Inflation Targeting Approach as a Monetary Policy in the Philippines During the mid- to late 1980’s, the Philippines had adopted the base money targeting as a monetary policy approach. This framework was implemented in an attempt to lower down the inflation rate in the year 1984 in which the inflation had soared to over 50

These exclusions consist of price burdens arising from: [a] the instability of the agricultural goods; [b] natural calamities (such as typhoon and earthquake) or other happenings that could disturb a major part of the economy; [c] the unstable prices of the oil products; and lastly, [d] the substantial government policy changes (such as the changes in the tax structures, incentives and government subsidies) that straightly affect