Decomposing the Inflation Dynamics in the Philippines

Si Guo, Philippe Karam and Jan Vlcek

No 2019/153, IMF Working Papers from International Monetary Fund

Abstract: Inflation rates rose sharply in the Philippines during 2018. Understanding the demand and supply sources of inflation pressures is key to monetary policy response. Qualitatively, indicators have pointed to evidence of inflation pressures from both sides in 2018, with the supply factors, by and large, associated with commodity-price shocks and demand factors deduced from gleaning at the wider non-oil trade deficits seen in the Philippines. Quantitatively, we deploy a semi-structural model to decompose the contributions of various shocks to inflation. Our main findings are (1) supply factors (mainly global commodity prices) played a prominent role in explaining the rise in inflation in 2018; (2) demand factors also contributed to inflation in a non-negligible way, justifying the need for tighter monetary policy in 2018; (3) the size of the estimated output gap (an important indicator of demand pressures) could be larger, when considering the widening trade deficits in 2018; and (4) a delayed monetary policy tightening can be costly in terms of higher inflation rates, requiring larger and more aggressive interest rate hikes to bring inflation under control, based on a counterfactual exercise.

Keywords: WP; inflation rate; headline inflation; price; monetary policy; inflation; the Philippines; headline inflation inflation rate; core goods inflation; disinflation pressure; monetary policy decision; services inflation rates; headline inflation rate; inflation path; y headline inflation; energy inflation; services inflation; inflation expectation; inflation decomposition; Oil prices; Output gap; Inflation targeting; Monetary tightening; Global (search for similar items in EconPapers)
Pages: 20
Date: 2019-07-12
New Economics Papers: this item is included in nep-mac, nep-mon and nep-sea
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=46988 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2019/153

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().