Media and Research - Publications and

Reports

​BS Review - January 2005

Abstract

Tracing the Impact of World Oil Prices on Inflation

– Mr. Joselito R. Basilio

Movements in world oil prices have a major influence on the path of inflation. This linkage has
become more significant given the prolonged volatility and sharp uptrend in world oil prices in the
last two years. This article examines the various supply- and demand-related factors that
influenced oil market conditions. The supply factors include 1) quota restrictions imposed by
OPEC; 2) supply disruptions due to geopolitical events in some oil-producing countries; 3)
environment-related disturbances; 4) the relative decline in petroleum inventories; and 5) the
decline in excess capacity for oil production. On the other hand, demand-related factors include 1)
global economic expansion; 2) seasonal patterns and variations; and 3) speculative activities.

Further, this article attempts to measure how much the movements in world oil prices have
affected domestic inflation. First, given the corresponding inflation rates and weights in the CPI
basket, the contribution of petroleum-related components to CPI inflation is estimated and
observed to have risen sharply between 2003 and 2004. Secondly, based on the BSP’s multi-
equation model (composed of structural and VAR equations) for forecasting inflation, the impact
on inflation of a one-percent increase in the price of Dubai crude oil is estimated at 0.023
percentage point. This is comparable to the results from the price-cost analysis of the input-output
tables, which show that a one-percent increase in world oil prices results into a 0.026 percentage
point rise in inflation. Lastly, based on simulations in the multi-equation model, the average
inflation in 2004 is estimated to reach only 8.0 percent had oil prices been stable or unchanged in
the past two years, lower than the actual inflation rate of 8.6 percent during the year. The
difference is considered as the relative impact of the rise in world oil prices to domestic inflation
during the period indicated.

Promoting Greater Use of Formal Remittance Channels by Overseas Filipino Workers

– Mr. Zeno Ronald R. Abenoja

The remittance industry continues to grow and has become more competitive as innovations in
the products and services emerge and as new players participate. While banks have become
more interested in this business, a significant portion of remittances of OFWS and immigrants
continue to flow through informal channels. The OFWs and immigrants turn to them because of
their innovative and speedy service and because they usually cover areas where there are no
formal banking facilities. In some cases, access of OFWs to formal channels is hampered by
documentary requirements or regulatory restrictions on the activities of Philippine banks abroad.
To attract remittances into formal banking system these concerns are being addressed by both the
government authorities and private sector participants. Banks have introduced innovative products
and have increased their tie-ups with foreign banks, money courier companies and other types of
establishments to effectively widen their network. The government on the other hand, has sought
to level the playing field for the remittance service providers, particularly in the area of anti-money
laundering regulations. Moreover, the government has been studying more closely the industry
and has been in discussions with the private sector as well as with other governments on how to
reduce the cost of remittance services.

Early Warning System for Macroeconomic Vulnerability: Some Results from the Philippines
– Mr. Antonio B. Cintura, Ms. Loida D. Cruz, Ms. Teresita B. Deveza, and Ms. Rosabel B.
Guerrero

This article reviews the literature on Early Warning Systems (EWS) models on the macroeconomy,
particularly the causes of currency crises, and presents some results on the development of an
EWS at the Bangko Sentral ng Pilipinas in support of its efforts to improve risk management in
monetary policy.

Views from Washington: The Role of Institutions in Economic Growth

– Ma. Cyd N. Tuaño-Amador