Theories

Keynesian economics used demand-pull inflation to describe if the price level happens to raise

due to imbalance in the aggregate supply and demand. If the aggregate demand overshadows the

aggregate supply in an economy, the prices will go up. The economists also describe demand-pull

inflation as a result of too many dollars chasing limited goods. If the consumer strongly demands a certain

goods it will soon result a demand-pull inflation. Many individuals that is purchasing the same good will

cause the price to increase, and when such an occurrence happens to a whole economy to all types of

goods, it is called demand-pull inflation. (investopedia)

Cost Push theories of inflation

The studies of institutional framework

The studies of institutional framework within which prices and wages are determined are vital when
understanding inflationary process. The role of the trade union in securing increased wages is
emphasized because it leads to increase in money value of national income and inflation. The trade
unions use the threat of an all-out strike to pressurize government and other employers of labour to
increase their wages. This increase may lead to increase in cost of production which is passed on to the
final consumers of goods and service in the form of higher prices. However, this cannot occur in a
perfectly competitive market where labor unions cannot exercise tight control over the supply of labour
and the substitution between labour and other factors of production are perfect in economic sense. The
profit push inflation can also be seen as another version of cost push inflation. This is when firms maintain
certain profit margin or mark-up which might become an important element in the inflationary process.
Excess Demand Theories
Excess demand is when the supply of goods and services falls short of the demand for them. Excess
demand leads to rise in prices of goods and services because interested consumers engage in
competitive bidding which result into higher prices. This view is better explained using the Keynesian
analysis.

Foreign literature

Foreign studies

(https://www.researchgate.net/publication/324829545_IMPACT_OF_INFLATION_ON_ECONOMIC_
GROWTH_A_SURVEY_OF_LITERATURE_REVIEW)
Martin Ruzima stated that they found the relationship of inflation and economic growth remains
controversial. Accordingly the results can be positive (Mundell, 1963; Tobin 1965), negative (stockman,
1981) and neutral (Sidrauski, 1967). Other studies concluded that the relationship between inflation and
economic growth is non-linear (Sarel, 1996; Khan and senhandji (2001); Mubarik, 2005; John et al.;
2011). They approved that the inflation rate beyond the certain threshold level is harmful to economic
growth but the enough or below threshold has a positive relationship on the economic growth. Moreover
the nonlinear relationship among inflation and economic growth has revealed that threshold level is high
for developing countries than developed countries.
(https://content.sciendo.com/abstract/journals/cer/20/3/article-p41.xml)
(Foluso Akinsola, Nicholas Odhiambo) reported the findings of their study that the effects of inflation
depend on country-specific characteristics, on balance the study found vast support in favor to the
negative relationship between inflation and growth, especially in developed economies. Though, the
controversy of the specific threshold of inflation that is applicable for growth is still abundant.

(https://www.scribd.com/doc/33766104/Research-Thesis-on-Inflation-by-Shoaib)
Shoaib stated that the inflation is one of the obstacles on the way of development. It is essential to be
organized by strategic planning. Domestic production should be stimulated instead of imports. Agriculture
sector must be given subsidies, foreign investment should be attracted, and developed countries should
be requested for financial and managerial assistance. And lastly a strong monitoring system should be
established on different levels in order to have a sound evaluation of the procedure at every stage.

file:///C:/Users/Administrator/Downloads/Inflation%20and%20it.pdf
(Emmanuel George 2009) Said that investment discourage is the major effect of inflation on firms. High
inflation takes less predictable returns on the purchased capital and it will also diminish the expectation of
that demand in the future. Low inflation drives encourage of investment and will help it to develop a long
term view.

Local literature

(https://docplayer.net/19735266-The-philippine-banking-industry.html)

The total of operating banks as of end-June 2001 was further reduced to 938 banks, 22 less than the
number a year ago. By nature of operations, these consisted of: 44 commercial banks, 109 thrift banks
and 785 rural and cooperative banks (inclusive of 52 cooperative banks).
In terms of ownership, these included: 13 foreign bank branches, 7 subsidiaries (5 commercial banks
and 2 thrift banks) and 3 government banks.
Overall banking operations continued to be fairly normal even as asset growth remained subdued and
earnings faced pressures. Solvency and liquidity positions slightly weakened but remained at acceptable
levels. On the other hand, profitability continued to be weighed down by the need to deal with
deteriorating asset quality. However, substantial earnings from extraordinary gains arising from asset
recoveries helped cushion the banking system’s bottomline figures. Consequently, returns on assets and
on equity slightly improved to 0.4 percent and 3.1 percent, respectively
Deposit mobilization played a major role in stabilizing the banking system and sustaining modest asset
growth. This was supported by fresh capital infusion by shareholders.

(https://serp-p.pids.gov.ph/documents/SERP-P%20NEWS%20MARCH%202018.pdf)
Michael Alba reported that the inflation can be influenced by some factors. First, inflation can rise due to
the oversupply of money, or when national bank reproduces money beyond demand. Instabilities in the
price of basic supplies such as rice, can also affect the general prices of goods. Apart from these factors,
market also responses to economic uncertainties cause the inflation to rise.
.

(http://www.bsp.gov.ph/publications/speeches.asp?id=149&yr=2001)

I commend the initiatives of the local banking community to contribute to the attainment of this vision. The
signing of the Statement on Environment and Sustainable Development by the Bankers Association of
the Philippines (BAP) is an explicit signal of the community’s firm commitment to environmental protection
and the conservation of natural resources. Integrating such a commitment into a bank’s corporate
philosophy is a very laudable move of the banking community for it bespeaks of corporate responsibility.

The Statement affirms the principles that good ecology is sound economics and that being pro-
environment is pro-development. Indeed, good environmental practices and a credible financial
performance can go hand in hand. Integrating environmentally sound practices into daily banking
operations and management systems can lead to reduction in costs and help maximize earnings. Specific
programs including those that reduce energy and paper consumption, limit waste production, and
promote recycling contribute to the efficiency of banks’ work processes. These initiatives can provide
clear benefits to the bottom line of banks as well as promote environmental protection.
Beyond these company-specific environmental objectives, banks—as intermediaries of financial
resources—are actually in a distinct position to influence businesses to play a major role in promoting
sustainable development. Bankers can do this by including environmental criteria in their overall lending
and investment strategy. Banks can, therefore, be more pro-active in supporting projects that are
environmentally sound.