Prepared by Si Guo (APD).
In the Philippines, nonresidents can invest in the T-bill market but are not allowed to have access to the BSP’s standing facilities. Thus, when there are capital inflows, the yields for the T-bills are usually lower than interbank rates that are largely influenced by the BSP’s standing facilities.
China is the biggest trading partner of the Philippines. The PPI inflation in China had been negative from early 2012 to late 2016.
The rationale for using transfers to contain inflation was that higher transfers to low-income families would reduce the need to increase minimum wage, which is determined in annual bargaining. A smaller increase in the minimum wage will result in less pressure on labor cost and inflation. The effectiveness of this measure remains to be evaluated, as higher transfers can also put upward pressure on inflation through increasing workers’ purchasing power.
The main changes to global conditions include the trade tension and the prospective of monetary loosening in other countries, especially the United States.
Rice price inflation reached its peak at 10.7 percent (y/y) in October 2018. The weight of rice is 9.6 percent in the CPI basket.
Higher excise taxes were implemented in January 2018 on tobacco and beverages (as well as oil products). Its (positive) contributions to inflation are largely captured in the contributions of food prices (light green bars). However, the separation between the impact of excise taxes and other food-related factors is not available because it would require the specification of separate Phillips curves for tobacco and beverage items.
It should be noted that the decomposition excise is model based, hence to some extent the results would depend on the specifications of the model.
This probably reflects that transportation and electricity suppers could adopt the “wait-and-see” approach to delay the pass through of previous (up to 2018:Q3) oil price increase.
As shown in the “Real Interest Rate” figure, the real interest rate as of 2019:Q2 was higher than neutral level.
The projections in this section were produced based on the information as of November 2019.
The average food inflation rates during 2002–2019:Q2 and 2010–2019:Q2 were 4.8 percent and 4.3 percent, respectively.
The model assumes a 4 percent nominal interest rate in the steady state (1 percent neutral real interest rate plus 3 percent inflation).
All scenarios assume that domestic interest rates will adjust following an assumed Taylor rule.