The Impact of Inflation and Unemployment on Household Consumption in the Philippines: The Intervening Effect of the Unemployment Rate

In an era of changing economic conditions and fluctuating market prices, this study examines how inflation influences household consumption in the Philippines and investigates the intervening role of unemployment as a potential transmission channel. Using a quantitative causal-comparative research design, the study analyzed Philippine time-series data from 2000 to 2018. The analysis employed the Baron and Kenny mediation framework, supported by linear and multiple regression models, to assess the direct relationship between inflation and household consumption and the indirect relationship transmitted through unemployment. Logarithmic transformations were applied to estimate elasticities and improve model stability. Several diagnostic tests were conducted to evaluate the reliability and validity of the regression models, including the Durbin-Watson test for serial correlation, the Jarque-Bera test for normality, the Breusch-Pagan test for homoscedasticity, and the Ramsey RESET test for model specification. The findings indicate that inflation does not significantly influence household consumption directly, and unemployment does not significantly mediate this relationship. However, unemployment emerges as a significant independent predictor of household spending. This suggests that labor market conditions may play a more important role in shaping household consumption than inflation alone. The persistence of spending despite price fluctuations may also reflect the influence of remittance inflows, consumer credit, and other household coping mechanisms. The study recommends that Philippine policymakers adopt integrated macroeconomic strategies that combine price stability measures with labor market protection and the promotion of decent, stable employment to safeguard household welfare and strengthen consumption resilience. Policies should protect vulnerable households during periods of economic uncertainty.