BSP develops new supply shocks surveillance tool
The Bangko Sentral ng Pilipinas (BSP) has developed another surveillance tool to determine and assess the impact of supplyrelated shocks on domestic prices, second-round effects and inflation expectations.
Based on a report, the BSP said it was necessary to construct the Philippines Supply Chain Pressure Index (PSPI) since during and after the Covid crisis, the BSP needed to have an additional monitoring tool to accurately assess the impact of the global supply shocks, the shortages and resulting price increases, on the domestic prices.
So far, the BSP said that preliminary estimates and based on potential applications of the PSPI, it showed that it could effectively capture “notable events that precipitated supplyrelated shocks in the domestic economy.”
These events include the tight domestic supply conditions due to weather disturbances and typhoon Yolanda in 2013; the imposition of a truck ban in Manila and ensuing port congestion in 2014; elevated crude oil inventory from 2015 to 2017 following the US shale boom; the delay of rice imports in 2018; and the impact of the rice tariffication law on domestic grains inventory in 2019.
More significantly, the BSP said PSPI captured the disruptions caused the pandemic lockdowns in 2020; global supply chain disruptions in 2021; Russia's invasion of Ukraine starting in 2022; and the food export bans implemented by several countries amid a global shortage of fertilizers in 2023.
According to the BSP, “to enhance the analysis of the current study and capitalize on the potential applications of the new indicator, the BSP will develop econometric models to quantitatively assess the impact of supply shocks—as measured by the PSPI—ON key macroeconomic variables such as domestic prices, second-round effects, and inflation expectations, among others.”
Furthermore, the BSP said it “intends to extend the PSPI to include supply pressures emanating from the service sector, including labor shortages resulting from demographic shifts and migration.”