[ANALYSIS] Why is Philippine inflation now the highest in ASEAN?

By JC Punongbayan/rappler.com – Yesterday, we were greeted by truly shocking news: the Philippines’ inflation rate, which measures how fast prices are rising, reached a whopping 6.4% in August.

Not only is this the highest in 9.4 years, it also exceeded the government’s upper forecast of 6.2%, and is way above the government’s 4% upper target for 2018.

Data also show it’s now the highest in all of ASEAN. Figure 1 shows that Vietnam’s inflation rate (at least as of July) was only at 4.5%, Indonesia 3.2%, Thailand 1.5%, Malaysia 0.9%, and Singapore 0.6%.

Notice too that when President Duterte came into office, Philippine inflation can be found right in the middle of the ASEAN pack. These days, we’re on top of everyone else.

But why is inflation running away in the Philippines and not in other ASEAN countries?

World oil prices

Inflation is always going to be a mix of international and domestic factors.

One obvious suspect is the continuing rise of oil prices worldwide.

Countries with no substantial oil production to speak of – like the Philippines – are forced to import oil. Consequently, they are at the mercy of global oil price movements determined largely by supply and demand.

Figure 2 shows the close correlation between domestic inflation and the yearly changes in global oil prices. Based solely on this graph, you might be forgiven to think world oil prices alone can explain much of the changes in Philippine inflation.

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