Monday, March 5, 2012

The "Monkeyness" of Bangko Sentral ng Pilipinas Inflation Targets


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Big questions  for the moment are: Why do they make inflation target? What is it for?

This post has one job to accomplish: to show that the Inflation Target set by the Bangko Sentral ng Pilipinas is one hell of a big con act. Meaning, a big trick, a fraud, and a swindle. Inflation target is just another way to blur people's attention as to what is the real culprit why prices of goods constantly increase at the first place.

From the BSP website, here is what they say:
Inflation Target – level of inflation which the BSP aims to achieve over a given period under the inflation targeting framework. The government’s inflation target is an annual target, currently expressed in terms of a point target (with a tolerance interval of ± 1 percentage point) and is set jointly by the BSP and the government through an inter-agency body, the Development Budget Coordination Committee (DBCC), although the responsibility of, and accountability in, achieving the target rests primarily on the BSP.
Monetary authorities make inflation targets each year. It is their threshold at how much rate should prices of goods be maintained.

By the way, what is inflation? I don't like to use the government (Keynesian) definition of it. (Here is why government definition of inflation is phony)  But for the sake of getting into the bottom of everything, I am going to use it for the meantime. Government monetary authorities define inflation in terms of prices of goods and services. When prices of goods increases, e.g. when there's fuel price hike, they call it inflation.

BSP's monetary policy  primary objective is “to promote price stability conducive to a balanced and sustainable growth of the economy”. And inflation target, they say, is a very important component they use to attain promote price stability".

Inflation targets is based on consumer price index (CPI), wherein average prices of selected goods, they call basket of goods, year by year are taken into consideration. Using some computations, BSP come-up or make-up some figures and declare it as the inflation target for the year. Inflation target for the 2012-2014, for example, was set to 3.5%. And this was set using year 2006 CPI's as the basis of computation. This means that the inflation rate should be about 3.5% compared to 2011 average prices of goods.

But Here is the Spoiler Folks!

For 2012, 3.5% is a low target you may say. This must be good you think. Hyperinflation is scary and 3.5% is not a hyperinflation, so hey what's wrong with inflation targets? Well, these guys are extremely intelligent I must warn you. And they know how to play your mind. Here is the spoiler they don't want you to notice.

Their plan is not to shock you. So, what they do is to make things little by little, year by year. What does that mean? Look at the graph below. And then compare it to the next graph. This graph shows inflation rate each year from 1999 to 2010.

Government date shows inflation rate each year.

What I wanted you to see is, this is very important,  that each year has its own inflation rate and it is computed basing from the preceding year. How to compute each year's rate? Simple. For the sake of illustration, say the price of rice in 1999 was P28.58 per kilo and in 2000 it became P30 per kilo. Take the year 1999 price then subtract it from year 2000 price. And the difference, P1.42, would then be divided by the 1999 price. The result is 0.05. But since we are talking about rates, multiply it by 100 and append a percent (%) symbol, thus 5% for the year 2000. Year 2000 rate was computed using 2009 data as a reference, year 2001 rate was computed using 2000, and so on. Please take note, that each rate covers a one-year period only.

Now, take a look at this graph using the same data used above. But this time, instead of taking a one-year period computation, we must take the whole duration of 10 years, from 1999 to 2010. This means, we must add all years rates. Here the resulting graph:

Graph showing actual rate in 10 years from 1999-2010

Notice the big difference? Yes. The graph showed an steady upward movement. Here is the shocker they try to avoid you from noticing. Price of goods increased 62.4% in a decade! That's the pain in the ass they don't want you to feel.

Every year monetary authorities comes up with a report showing single digit inflation rate. Each time they contain it within the target, they take credit from it by saying it is all for price stability. Everything is within target. Hurrahhh! Promoting price stability is indeed right on track!

Oh yeah? No, I don't agree. 62.% increase in price is what they call price stability? If it is so, and if we believe that, their dropping stinky shits on top of our heads without us noticing it. These people don't really do price stability. Everything is just blahblahblah. More precisely, what they actually do is promoting stable increase of prices each year. They don't want you notice that. That is why they issue it yearly, while of course rate are shown in single digits they call "within the target". So they feed people with reports saying, oh yeah inflation is within the target! They don't want people to know that each year inflation target is irrelevant. Doesn't mean anything at all. Everything is a fake assurance that everything is just fine. Fart. Nothing is fine when there is an steady increase of prices running in 2 to 3 digits. 

What they wanted you to believe is that inflation target, once fully met is that you owe them a big favor. Give them applause. No, you owe them nothing. In contrary they owe a lot from the people, from us.They cheat us.

They don't want people to see clearly where do the increase in prices come from. It comes from inflation of money supply. And since they are quite successful at changing the definition of inflation, the next thing they do is to come-up with another antic to re-assure people government is doing a great job.

Conclusion:

Monetary authorities, led by the BSP, uses Inflation Target to create the illusion that government really does something amidst rising prices.

Indeed, what a beastly deception against the people. Having inflation targets serves nothing good for the people. It is just a cunning and corrupt mechanism by the government to confuse citizens what's the real cause of rising of prices. And that is we have a financial system dominated by fiat or paper monies which by the way produced from bank's printing presses and from bank's  electronic balance sheets.

Related Post:
What is the Real (idiotic) Definition of Inflation?
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1 comment:

  1. Please publish more articles on the BSP more specifically what can be done to free us from enslavement to the bankers. Thanks for the valuable info.

    ReplyDelete