PH-ASEAN Inflation Rates

Team M.I.
Philippines-ASEAN Inflation Rates 2001-2010
INTRODUCTION
Inflation measures the increase in overall price levels of commodities. All
governments aim to keep their inflation rates low and prices stable. Considering that
prices of commodities and production costs increase while supply and demand
fluctuate, add to these all the other macroeconomic factors and externalities, inflation,
therefore, is an undeniable fact of life.
There are two types of inflation. First is the demand-pull inflation which is brought
about by increases in consumer demand while production does not increase or it could
not meet the demand. The persistent problem of rice shortage is an example that
results to a demand-pull inflation. Cost-push or supply-side inflation, on one hand,
occurs when there is a rise in the cost of inputs, such as oil and wages, in the
production process.
Cases of deflation or negative inflation also occur when there are decreases in
overall price levels. In contrast, stagflation is brought about by decreasing output
coupled with rising prices. Hyperinflations, on one hand, are periods of very rapid
increases in the overall price level.
This paper will describe the inflation rates in the Philippines from years 2001 to
2010 and compare this with that of other ASEAN member states, namely, Brunei
Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Singapore, Thailand
and Viet Nam. It will further attempt to analyze the causes of inflation and provide a
general perspective of the way forward for the country.
INFLATION IN THE PHILIPPINES (2001-2010)
The Philippines experienced single-digit inflation rates in the past decade with
the lowest 2.8% in 2007 due to the soaring economic growth, strong peso and stable
prices of commodities. The following year, however, recorded the highest inflation rate
at 9.3% mainly due to the global financial crisis.

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The decade began in a slump with a rate of 6.0% due to the political instability
brought about by the change in leadership from the ousted Former President Joseph
Estrada and his successor Former President Gloria Macapagal Arroyo. Year 2001 was a
time of sluggish investment growth, rising unemployment rates, international oil price
increases and weakening of the peso. Slightly stable was years 2002 and 2003 with a
rate of 3.1% brought about by a slowdown in food inflation, subdued demand-pull
inflationary pressures, soft-labor market conditions and the downtrend in international oil
prices.

Philippines
Inflation Rates
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
April 2011

6.0
3.1
3.1
6.0
7.6
6.2
2.8
9.3
3.2
3.8
4.5

The election in
2004,
supply-side
shocks including the
increase in global oil prices as well as the spate of typhoons and domestic supply
constraints affecting the availability of certain food products resulted to a rise in the
inflation rate to 6.0%. Inflation rose again in 2005 to 7.6% with the continued increase in
consumer prices in food, energy and transportation coupled with adjustments in
minimum wage and the adverse effect of El Nio on agricultural output, especially on
rice and corn production.
Year 2006 was slightly lower at 6.2 due to higher world oil prices, the twopercentage point increase in the VAT and the removal of certain VAT exemptions. It
further decreased to 2.8% in 2007 due to generally stable prices for major food items,
favourable supply conditions, particularly the sustained growth in agriculture and the
subsiding base effect of the RVAT on CPI as well as the firm peso tempering the impact
on domestic prices of increasing global commodity prices including food and oil.
The confluence of global and supply-side factors such as the big surge in the
international prices of oil and food commodities, resulting in higher domestic rice and
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pump prices of fuel, likewise affecting wage and price-setting behaviour of businesses
and households shot the inflation rate to its highest level of 9.3% in 2008.
The Philippine economy bounced back to a rate of 3.2% in 2009 due to lower oil
and other commodity prices brought about by subdued demand conditions. A slight
increase the following year to 3.8% was traced to subdued food price increases
facilitated by rice imports countering local production shortfalls caused by bad weather
conditions.
INFLATION IN OTHER ASEAN MEMBER STATES (2001-2010)
A. Brunei Darussalam
The Sultanate of Brunei is characterized as having the lowest inflation rates in
the Southeast Asian region in the past decade ranging from a deflation rate of 2.3% in
2002 and the highest inflation rate in 2008 at 2.1%.
Inflation is mainly subdued due to its Currency Interchangeability Agreement
which pegs the Brunei dollar at parity with the Singapore dollar. Basing on this
arrangement, Bruneis inflation generally moves in tandem with Singapores trend price
developments. Hence, Singapores deflation in 2002 at 0.4% set off Bruneis deflation in
the same year.

Brunei
Inflation Rates
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

0.6
(2.3)
0.3
0.8
1.2
0.2
1.0
2.1
1.0
1.5

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With an economy dominated by the oil and gas industry accounting for more than
90% of its exports and more than 50% of its Gross Domestic Product, Brunei has been
able to suppress inflation rates through an extensive system of government subsidies
on rice, sugar, fuel, housing, education and health services. There is likewise a price
control for motor vehicles, infant milk powder, cigarettes and cooking oil. Further, taxes
on personal income and on sales of goods and services are not imposed. All these
factors contribute to maintaining low inflation rates.
ASEAN economies account for 45% of Bruneis total imports while 39% are from
the US, Japan and Europe. Price developments in the country, therefore, reflect the
decline in US dollar import prices as well as fluctuations in the bilateral exchange rates
of import source economies. Moderation of the imported inflationary pressures was
offset by the depreciation of the Brunei dollars against the US dollar, pound sterling, yen
and other major European currencies as well as the appreciation of the countrys
currency against that of neighbouring countries
The global financial crisis of 2008 had a very limited effect on Bruneis inflation
considering its ample financial resources, although the prices of food and entertainment
surged relatively higher than usual. Following the March 2011 earthquake and tsunami
which damaged its nuclear industry, Japan is expected to increase its demand for
liquefied natural gas from Brunei. An improvement in the regulation and supervision of
the government financial system is further foreseen in the setting up of the Brunei
Monetary Authority early this year.
B. Cambodia
Beleaguered by two decades of war, a horrific genocide, international isolation
and a double-digit inflation before 1999, the Kingdom of Cambodia is on its way to
recovery in the past decade.

Cambodia
Inflation Rates
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

(0.6)
3.2
1.2
3.9
6.3
6.1
7.7
25.0
(0.7)
4.0

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Despite rising fuel prices, the country even experienced a deflation rate in 2001
at 0.6% due to a stable exchange rate of the riel against the dollar and a relatively
liberal trade policy that is open to both imports and exports. Single-digit inflation rates
fluctuated from 2002 to 2007 with the lower recorded level at 1.2% in 2003, due to
domestic reforms raising economic efficiency, and a high of 7.7% in 2007. Inflation rise
was mostly caused by an economy that is highly dollarized with foreign currency
circulation amounting to nearly 95%. Further, the weak financial system resulted to a
limited scope of the central bank to pursue monetary policy. On this note, it was not
surprising that the inflation rate jumped up to 25.0% in 2008 as the country was
severely affected by the global financial crisis.
Cambodia quickly recovered, however, in 2009 and 2010 recording a deflation
rate of 0.7% and 4.0%, respectively. Growth in the sectors of agriculture, tourism,
particularly the influx of tourists to its world-famous Angkor Wat temple complex, offshore oil and gas production as well as clothing exports contributed to the stabilization
of its inflation rates.
C. Indonesia
Curbing the inflation rates of Indonesia was a persistent problem throughout the
decade. It was characterized by highly fluctuating inflation rates ranging from a low of
5.1% in 2010 and a high of 13.1% in 2006. In 2005, it recorded the highest inflation rate
among its ASEAN neighbours at 10.5%, even higher than Myanmar.

Indonesia
Inflation Rates
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

11.5
11.9
6.6
6.2
10.5
13.1
6.3
10.1
6.4
5.1

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Indonesias vulnerability to natural disasters such as the December 2004

earthquake and tsunami disaster, the El Nio weather phenomenon in 2007 and the
avian flu, which claimed more than 60 human lives in the country alone, the largest
death toll in the world. These brought about low food production and price instability.
The dismal situation is exacerbated by the Bank of Indonesias deviations in inflation
targets which erodes the credibility of monetary policy and further entrenching
expectations of higher inflation.
To rein in inflation, the Bank raised the reserve requirement for commercial banks
in 2010 which absorbed an estimated excess liquidity amounting to 53 trillion rupiah.
The appreciation of the currency against the US dollar further mitigated the imported
inflation. The government also responded to the food shortage by suspending import
duties on some food items, directing its rice procurement agency, Bulog, to ensure
adequate supplies as well as expanding a program that distributed monthly rice supplies
to millions of poor households. The stronger labor market, high prices of agricultural
commodities and increase in incomes are forecasted to expand private consumption.
Finally, growth in credit and higher levels of confidence in the country will certainly result
to more investments in Indonesia.
D. Lao PDR
Lao PDR experienced its highest inflation rates between 2002 and 2004 peaking
at 15.5% in 2003. It also recorded a rate of 10.5% in 2004, the highest in the Southeast
Asian region in that year. Accelerated inflation was mainly due to the kip, the countrys
currency depreciating against the dollar, seasonal weakness against the Thai baht, with
Thailand being a major source of imports, and increases in public utility prices as part of
the overall public expenditure reform.
Lao PDR
Inflation Rates
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

7.8
10.6
15.5
10.5
7.2
6.8
4.5
7.6
0.0
6.0

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Year 2004 was further exacerbated with the SARS outbreak and local security
concerns which kept the tourism industry below its expected levels. Prices of consumer
items and construction materials likewise increased brought about by higher prices of
imported oil.
The economy paced up in 2005 to 2007 resulting to decelerated levels of inflation
at its lowest in years with a recorded 4.5% rate in 2007. The government further
stimulated the supply of rice by subsidizing paddy production and implementing its land
reform program. Development of hydropower projects and growth in the mining industry,
particularly gold and copper has also contributed to Lao PDRs growing economy.
In 2010, inflation rate again went up to 6.0% considering increases in consumer
prices, higher global oil prices which also raised the costs of fuel and transport,
droughts and floods, diseases in farm animals which in turn disrupted food supplies.
The government still needs to invest and reform the agriculture sector which supports
the majority of the population.
E. Malaysia
Malaysias consistently low, single-digit and very stable inflation throughout the
decade ranged from a low of 0.6% in 2009 and the highest at 5.4% in 2008. In response
to the global financial crisis and to keep its inflation low, Malaysia appreciated its
exchanged rate and maintained its price controls on basic goods.

Malaysia
Inflation Rates
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

1.4
1.8
1.0
1.5
3.0
3.6
2.0
5.4
0.6
1.7

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The contained level of inflation was brought about by the appreciation of its
currency, the ringgit, against trading partner currencies. Malaysias accommodative
monetary policy also helps maintain the inflation rates from fluctuating abnormally.
Favourable labour market conditions and increasing credit to households and
businesses generally contribute to keeping the inflation low.
An upper middle- income country, Malaysia has achieved a three-decade-feat of
virtually eradicating poverty, building a world-class infrastructure and becoming a major
exporter. Its economy has continued to expand at robust rates and the government has
largely stopped borrowing from multilateral sources following the Asian financial crisis in
1997.
The country has further announced its goal to attain high-income country status
by 2020 through the implementation of the following structural reform programs
launched last year:
1. Generate inclusive and sustainable growth to ease constraints to higher
private investment;
2. Implement market-friendly affirmative action programs that target the bottom
40% of households, mostly located in Sabah and Sarawak;
3. Improve public service delivery and reduce fiscal deficits and
4. Equal emphasis on environment protection and economic growth.
F. Myanmar

Myanmar
Inflation Rates
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

21.1
57.1
36.6
4.5
9.4
20.0
35.0
26.8
1.5
7.3

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Irrefutably the most problematic in terms of economic performance, Myanmar

recorded the highest inflation rates, in double-digits, amongst all the ASEAN Member
States. Its inflation rates for the past decade ranged from a high of 57.1% in 2002 and
the lowest at 1.5% in 2009. Bear in mind though that these numbers may not be as
accurate considering that the statistics from Myanmar are unreliable.
The accelerated inflation in 2002 was mainly due to the large increase in public
sector wages that was financed through central bank credit creation. Slapped with
international sanctions and domestic economic uncertainties, the countrys private
capital inflows have practically disappeared. Add to this the widespread flooding which
adversely affected agricultural production.
In 2004, the temporary ban on rice exports increased the supply of rice for
domestic consumption may have contributed to a lower inflation at 4.5%. On the other
hand, the ban resulted to a drastic decrease in rural household incomes as well as
national foreign exchange earnings. It has also delayed the liberalization of trade and
agriculture. The inflation fluctuated again in 2007 at 35.0% due to monetized fiscal
deficits. With the economic impact of Cyclone Nargis in 2009, political strife, poor
harvests and instability in the banking system, inflation rates remain high.
G. Singapore
With a highly developed and successful free-market economy, Singapores
inflation rates for the past decade ranged from a deflation of 0.4% in 2002 and a high of
6.5% in 2008.
Singapore
Inflation Rates
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

1.0
(0.4)
0.5
1.7
0.4
1.0
2.1
6.5
0.6
2.8

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Inflationary pressures remained subdued in 2002 with the CPI falling by 0.4%
and persistent depression in private sector consumption and investment. Domestic
asset prices declined which resulted to increased deflationary pressures and reined in
economic growth. In 2004, developments in the world commodity prices and price
shocks from food-related diseases effected an inflation rate of 1.7%. The bird flu
outbreak in the region and the mad cow disease in the US caused prices to rise.
Increasing world oil prices and disruption of gas supplies from Indonesia to Singapore
have likewise put pressure on the retail petrol market. Inflation stabilized in the following
years due to an improvement in global economic conditions and supportive domestic
policies.
The fiscal stimulus package helped cushion the severity of the recession in 2008
and 2009. A loosened monetary policy was directed by the Monetary Authority of
Singapore allowing a modest and gradual appreciation of the Singapore dollar. The
Jobs Credit Scheme of the government prevented mass layoffs by offering cash grants
to labor-intensive firms to partly cover wages. A moderate inflation of 2.8% in 2010 due
to increases in the cost of automobile certificates, rising prices of food and housing was
responded to by the Monetary Authority of Singapore with a tightening of the policy
stance. The Singaporean dollar appreciated against the US dollar while liquidity
remained high.
With its strategic location and favourable government policies, Singapore has
become a hub of foreign investments. Its economic policies are pro-foreign investment
and export-oriented. The country is recognized as the most competitive in Asia with the
World Bank noting that it is the easiest to do business in due to its open and liberal
economy for international trade as well as low levels of corruption incidence.
Thailand
Inflation Rates
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

1.6
0.7
1.8
2.8
4.5
4.6
2.2
5.5
(0.8)
3.2

H. Thailand

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A middle-income country, inflation in Thailand remained relatively stable from

2001 to 2004 ranging from a low of 0.7% and a high of 2.8% mainly due to its strong
currency, the Thai baht, strong private consumption spending, government measures to
ease access to credit and the provision of a stimulus such as the village fund project.
The project was a substantial package of farm, village and small enterprise-oriented
programs designed to expand productive opportunities for low-income groups. Further,
a low-cost universal health scheme was introduced to cover the uninsured.
Inflation shot up to 4.6% in 2006 during the political instability which took hold
when the military coup overthrew the government. In 2008, it again accelerated to 5.5%,
the countrys highest rate in the past decade which was of course brought about by the
global financial crisis. The government responded by assisting low-income households
with free electricity and water supply and subsidies for public transportation to stimulate
private consumption as well as assistance for small rural enterprises.
The economy has rebounded strongly from the global crisis although a moderate
increase in inflation at 3.2% in 2010 was triggered by political tensions leading to violent
demonstrations in the countrys capital, Bangkok. Add to this the low agricultural
productivity caused by droughts and floods which caused food prices to rise.
I. Viet Nam
Viet Nams inflation rates fluctuated in the past decade from a deflation in 2001 at
0.4% and, having been one of the hardest hit by the global financial crisis, caused it to
shot
up to 23.1% in 2008.
Vietnam
Inflation Rates
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

(0.4)
3.8
3.2
7.8
8.3
7.4
8.3
23.1
7.1
9.2

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High inflation rates from 2004 to 2007 ranged from 7.4% to 8.3% mainly due to
the increase in prices of food, housing construction materials and transport which was
brought about by different crises such as the drought, outbreak of the avian flu and
rising world prices for rice. To address the economic predicament and attempt to slow
down inflation, the government lowered tariffs on petroleum and steel products.
Inflation surged at a whopping 23.1% during the 2008 crisis. Main causes were
the rise of world commodity prices as well as food prices brought about by epidemics in
farm animals and bad weather conditions. The government responded by freezing
domestic fuel prices, imposing a temporary ban on new contracts for rice exports and
raising export taxes on crude oil and coal. The countrys economy endured the 2008
crisis fairly well with inflation rates in 2009 and 2010 returning to single-digit levels at
7.1% and 9.2%, respectively. The government tightened fiscal and monetary policies to
curb inflation and restore the overall macroeconomic stability.
The past 2 decades has seen the rise of Viet Nam as one of the fastest-growing
economies in the region. In the first quarter of 2011, the State Bank of Viet Nam issued
a directive to implement Resolution 11 which contains macroeconomic policy measures
including increasing electricity prices while shielding the poor and using a more marketbased mechanism for petroleum pricing. Having reached middle-income status, the
country has reduced poverty dramatically and is on its path to macroeconomic stability.
COMPARATIVE ANALYSIS

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Predominantly rising inflation rates has transpired in most ASEAN Member

States. While it has yet to become a serious problem, increasing prices of commodities
threaten to hamper the economic growth of countries like the Philippines.
The sound monetary policies of Bangko Sentral have mostly contained price
pressures. Political stability and measures to curb corruption have likewise contributed
to growing investor confidence. It is, however, not enough. The country still lags behind
its neighbours such as Malaysia, Thailand, Indonesia and Viet Nam in the global
competitiveness ranking of the World Economic Forum.
In response to soaring international food prices, Indonesia has suspended duties
on food-related items this year while the Philippines has lifted the tariff on refined sugar
as well as a zero tariff on milling wheat last year. Thailand chose to impose limited and
targeted capital controls to reduce inflows of short-term capital in the 4 th quarter of 2010.
The Philippines will surely benefit from the experiences of Singapores proforeign investment and strong export orientation. It will certainly learn from Malaysias
favourable labor market conditions and increasing credit to households and businesses
to keep low inflation rates. Thailands interventions to stimulate private consumption and
assistance to small rural enterprises are likewise learning experiences for the
Philippines.
The self-sufficiency of Brunei Darussalam and Malaysia in terms of oil and fuel
supplies allowed them to be more resilient from rising prices of global commodities. Lao
PDR and Cambodia have likewise diversified and invested in hydropower projects,
mining, off-shore oil and gas production. The Philippines, in turn, must boost
investments in alternative and sustainable energy sources to reduce dependence on
global oil and fuel supplies.

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The Philippines has improved its resilience to shocks with its recent economic
growth and fiscal consolidation. It has strongly rebounded last year due to a recovery in
investment and exports as well as a robust private consumption. The country will be
able to sustain its growth and pursue its development goals by strengthening tax
revenues and improving the domestic investment climate.

SOURCES
Print Sources

Asian Development Bank. Asian Development Outlook 2001-2011

Case, K. Fair, R. & Oster, S. (2009). Principles of Economics. Yale University:

Prentice Hall. Pearson Education International.

Online Sources

Asian Development Bank. Key Indicators for Asia and the Pacific,
http://www.adb.org/Documents/Books/Key_Indicators/

Asian Development Bank. Global Food Price Inflation and Developing Asia,
http://www.adb.org/documents/reports/global-food-price-inflation/foodprice-inflation.pdf

Bangko Sentral ng Pilipinas. Inflation Report,

http://www.bsp.gov.ph/publications/regular_inflation.asp

National Statistics Office. Index of Price/Inflation Statistics,

http://www.census.gov.ph/data/sectordata/datacpi.html

The World Bank. Data by Countries and Economies,

http://data.worldbank.org/country
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