PB50-Consumer Price Index (CPI) and Producer Price Index (PPI)-Manufacturing Relationship in Philippines
Conference
65th ISI World Statistics Congress
Format: SIPS Paper - WSC 2025
Keywords: econometrics, inflation, multivariate time series
Session: CPS Posters 16
Wednesday 8 October 4 p.m. - 5 p.m. (Europe/Amsterdam)
Abstract
This study investigates if producer price is a good explanatory variable of inflation using the Vector Autoregression (VAR) model. There were three pairs of variables used, namely: Producer Price Index (PPI)-manufacturing and Consumer Price Index (CPI); PPI food manufacturing, and CPI food; and PPI-coke and refined fuels, and CPI electricity. All the variables were expressed in growth rates.
The following analyses were done: impulse response function (IRF), forecast error variance decomposition (FEVD), and robustness tests. The study found that PPI-manufacturing is a good explanatory variable and can be used by policy makers to assess the effect of price shocks. Specifically, a shock in PPI-manufacturing may not immediately affect inflation but only appear in the sixth month and linger for 15 months before it dies down, while shocks in PPI-food manufacturing, and PPI-coke and refined fuels appear in the ninth and fourth month to affect food inflation and electricity inflation, respectively.