The United States had treated inflation as its most hated enemy during the 70s and now it seems like the 20th century would not be any different. Economists have been observing that the current inflation is reflecting an upward trend. The economists are determining now from this trend if this is structural or just cyclical, something that is only a product of current demand situations. Structural changes had been evident and these are seen to be keeping the inflation well above what the U.S. Federal Reserve had been experiencing for years, from 2 to 2.5%. These changes are the rising demand for commodities produced by both the emerging and developed economies, the budget deficit the country had been experiencing as well as trade deficit, and the weakening of the U.S. dollar. These changes will continue to place pressure on commodity prices especially on oil and then later on, significantly on grains, foodstuff, and minerals as well. This would not only be evident in the US but in other countries as well (Lazzaro, 2008).
Higher prices are expected to reduce demand, but in terms of the commodity grains, it would be more difficult to predict how much demand would actually ebb, because there are existing government subsidies. On the other hand, oil prices are nearing their peak, above $130 per barrel. A persistent around $100 oil price though can promote the development of cheaper, alternative energy sources in the next decade in which global economic growth could be achieved. Still, the case now is if commodity demand would continue to plummet down, and new energy forms arise, above-average inflation would be a mainstay in the U.S. and worldwide. In cyclical terms, this rising inflation is actually the product and not the cause of these record-high oil prices and the idea that the U.S. had failed to think of the above-discussed alternatives to the energy policy. But, as of now, the rising inflation could be explained largely in structural terms, globalization is the ensuing reason for these changes, and eventually, in the future, the market itself will impose solutions (Lazzaro, 2008).
As said, the US is not the only country experiencing galloping interest rates. The Philippines and other Southeast Asian countries are also facing this at an alarming rate which could even eventually lead to social unrest as warned by the World Bank.
The inflation rate saw 9.6 percent in May in the Philippines, as evidenced by the skyrocketing food and fuel prices. Aside from being alarmingly high, this rate had increased the fastest for the last nine years. It had risen 6.9 percent from the start of the year, much higher than that anticipated by the Development Budget and Coordinating Committee of 3 to 5 percent only. The Bangko Sentral ng Pilipinas had projected that this rate is likely to reach even 10 to 11 percent year on year increasing prices remain evident in all commodities especially oil. Unlike the United States, the Philippines is a developing country, and therefore the high inflation rate would impact adversely more on the poor (Amojelar, 2008).
The World Bank is also concerned that the effects of higher food prices and the additional increases prices of oils and metals would reflect for the region an aggregate income loss of about 1 percent in its GDP in 2008.
The multilateral lender even said the government would have to face not only the implications of having a high inflation rate on the economy but more on the challenge of protecting the most vulnerable of their citizens, the impoverished making up the mass of the country in a fiscally responsible and sustainable manner. It is proposed that the government should avoid as much as possible providing subsidies as the resolution to this problem and instead focus on using and expanding its safety nets to provide properly estimated income support. Subsidies can be quite expensive and developing countries like the Philippines would incur more burdens rather than relieving themselves of the problem at hand (Amojelar, 2008).
Along with the problem of inflation, or in relation to it, the unemployment rate in the Philippines also worsened to 7.4 percent in January, in which criticisms again abounded the government that it has failed to create more jobs. The unemployment rate in October 2007 is already as high as 6.3 percent, and now it rose to 7.8 percent. This reflects 400, 000 more jobless Filipinos in that short span of time. As it is, not sufficient effort had been put to attract business that could offer more jobs in the country, when in fact there are ways to do so. For example, tourism should be boosted, and which could translate to more jobs and less unemployment. Also, while the government creates more employment opportunities, it should not discount the idea that these jobs should be of quality (Remo, 2008).
The picture is certainly dismaying but the unemployment rate could have been worse had the National Statistics Office included in its category of the labor force, those not seeking jobs and depending just fully on remittances sent by family members working overseas. The NSO excluded this sector from its count of the total labor force (Remo, 2008).
The situation in the United States, albeit a developed country, is not any different. Fueled by an economic recession, the national unemployment rate is set to increase by 2.1 to 3.8 percentage points, in which the noe 3.2 Americans with no employment will surge to 5.8 Million. The rate is anticipated to increase yearly until 2010. Recession, therefore, is seen to be the answer to this problem, or the shortening of it (Glabourwriters, 2008).
References
Amojelar, Darwin G. (2008) Inflation to cause unrest, WB warns. The Manila Times Internet Edition. Web.
Glabourwriters. US: Recession and Unemployment in 2008. Web.
Lazzaro, Joseph (2008) Rising inflation: Could the United States have prevented it? The Blogging Stocks. Web.
Remo, Michelle (2008). Unemployment Rate worsens to 7.4 %. Inquirer. Web.