Price linkages: the causal relationships between world oil and rice prices and domestic inflation
Date
2022-05-27
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Abstract
Commodities traded at the international level may affect domestic affairs. Oil is one of
the many internationally traded commodities which may affect the general price level
in the Philippines, since the country is an importer of the good (The Atlas of Economic
Complexity, n.d.). Rice is another commodity of interest. In the Philippines,
approximately 118.81 kg of rice is consumed per Filipino (Department of Agriculture,
2020). Covering the period from October 2004 to December 2020, the study uses
monthly time series to determine the short run and long run causal relationships
between world oil and rice prices and the Philippines’ domestic inflation rate. Data on
the domestic inflation rate are derived from the Consumer Price Index (Year-on-Year)
released by the Philippine Statistics Authority while the world prices of both crude oil
and rice are benchmarked on the BRENT crude oil and Vietnam rice with 5% brokens,
respectively. Estimates from the vector autoregression (VAR) and vector error
correction (VEC) models are used along with supplementary tests which led to two
main conclusions: (1) the world oil price exhibits short run causality on the domestic
inflation rate; and (2) the world rice price exhibits long run causality on the domestic
inflation rate.