Determinants of Consumer Price Inflation Versus Producer Price Inflation in Asia

Juthathip Jongwanich,Petchtharin Wongcharoen

doi:10.2139/ssrn.2811565

Juthathip Jongwanich, Petchtharin Wongcharoen

Open Access

https://doi.org/10.2139/ssrn.2811565

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Journal: SSRN	Publication Date: Jul 19, 2016
Citations: 1	License type: cc-by

Affiliation: Thammasat University, Asian Development Bank Institute

Abstract

We empirically examine and compare the determinants of producer and consumer price inflation in 10 Asian economies during 2000–2015. In this connection, we also investigate the pass-through of global oil prices, global food prices, and exchange rates to domestic producer and consumer prices. Overall, we find that cost-push factors such as oil and food prices are more important in explaining producer price inflation than consumer price inflation in the 10 Asian economies. On the other hand, for consumer prices, demand-pull factors still explain much of the inflation. Finally, we find that the pass-through of global oil prices, global food prices, and exchange rates tend to be higher for producer prices than consumer prices in Asia.

Highlights

Inflation has dropped drastically in many economies since the second half of 2009
We find that cost-push factors such as oil and food prices are more important in explaining producer price inflation than consumer price inflation in the 10 Asian economies
Consumer price inflation dropped from 1.5% in 2010 to 1.4% in 2014, and is expected to decline further to 0.3% in 2015.1 This trend is evident in developing Asia

Summary

Introduction

Inflation has dropped drastically in many economies since the second half of 2009. Producer and consumer price inflation have both declined visibly. Consumer price inflation dropped from 1.5% in 2010 to 1.4% in 2014, and is expected to decline further to 0.3% in 2015.1 This trend is evident in developing Asia. In East Asia, inflation is expected to decline to 1.4% in 2015 from almost 3% in 2010. In Southeast and South Asia, inflation is expected to drop from 4% to 3% and 10% to 5%, respectively, between 2010 and 2015.2 In Thailand; Viet Nam; Singapore; and Taipei,China, inflation is expected to be zero or negative in 2015. There are two possible drivers of Asia’s recent disinflation. Economic growth and aggregate demand has weakened, especially in East Asia. There has been no formal empirical analysis of the sources of Asia’s recent disinflation

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Conclusion