What High Inflation Means for Filipino Entrepreneurs
Frequently Asked Questions
Oil prices act as a primary driver of cost-push inflation because they increase the cost of transportation, energy, and raw materials across almost all industries. In the Philippines, where goods must travel extensively from farms or factories to retail hubs, higher fuel costs force a wide-range rise in the price of consumer goods. This effectively reduces the buying power of the peso, meaning the same amount of money purchases fewer goods and services than before.
Demand-pull inflation occurs when consumer demand outstrips the available supply, while cost-push inflation is driven by rising production costs like wages or raw materials. Entrepreneurs must distinguish between the two because demand-pull often signals a healthy, growing economy, whereas cost-push—like the current oil price hike—pressures profit margins. Identifying the cause helps business owners decide whether to increase production or focus on cost-cutting and efficiency.
High inflation often leads the Bangko Sentral ng Pilipinas (BSP) to raise interest rates to cool the economy, which increases the total cost of borrowing for businesses. While founders with fixed-rate loans might "pay less" in real value terms as the peso weakens, those with variable-rate loans will see their interest payments skyrocket. It is critical for entrepreneurs to review the fine print of their credit lines to anticipate how central bank interventions will impact their debt service.
As inflation reduces disposable income, consumers prioritize basic needs and cut back on non-essential or luxury spending. Businesses must determine if their products are considered "essentials" by their target market or if they are at high risk of a significant drop in demand. If a product is non-essential, the founder may need to pivot their marketing or business model to maintain relevance as customers tighten their budgets.
When employees demand higher wages to cope with the rising cost of living, businesses can explore solutions that reduce employee expenses without a direct salary hike. Strategies include transitioning to work-from-home models or implementing a four-day work week to decrease commuting and fuel costs for the staff. These measures help balance worker welfare with the company’s need to manage higher operating costs during an oil price shock.
