Is rice price a major source of inflation in the Philippines? A panel data analysis

ABSTRACT

We estimate a panel vector auto-regression model using monthly prices for 17 regions in the Philippines from 2007 to 2019. Our results suggest that the effect of rice price on inflation is larger than the effect of fuel price and remittances. The results obtained are robust to various model specifications, different sub-periods, and inflation proxies. The impulse response functions for sub-samples of regions show two remarkable results. First, the response of inflation to a rice price shock varies according to poverty incidence by region. Second, the magnitude and persistence of this effect are larger for regions with high poverty rates. These results suggest that the Central Bank should keep alert in monitoring and assessing key developments in rice prices and supply.

KEYWORDS:

• Inflation
• rice price
• remittance
• Philippines

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ We use quarterly regional data on savings deposit and share of savings to remittances as a proxy for remittances. Monthly observations are interpolated using the RATS Distribute procedure.

² We performed the Granger causality Wald tests, and checked the stability condition of all estimates.

³ Regions are categorized based on level of poverty incidence (see online Table 4).

⁴ The Central Bank does not currently intervene to offset the effects of remittances on money supply.