Global supply chains experienced unprecedented disruptions in 2020 and 2021 as pandemic-related lockdowns hindered businesses in emerging market economies from meeting recovering demand in advanced economies. Multiple waves of COVID-19 infections led to repeated mobility restrictions, causing significant delays in manufacturing schedules and severely limiting the operational capacity of critical logistics facilities. As governments began relaxing quarantine measures toward the end of 2021, most pandemic-related disruptions started to ease. However, prolonged geopolitical conflicts and increased frequency of weather-related disturbances in recent years have exacerbated the supply shocks initially caused by the pandemic, resulting in the persistence of above-target inflation in many economies.
In the Philippines, these disruptions led to shortages and a consequent rise in input prices, which adversely affected domestic industries. The backward linkages between local firms and global supply chains served as channels for transmitting global supply shocks into domestic prices. What were initially perceived as transitory inflationary pressures eventually became persistent as successive supply shocks altered the price- and wage-setting behavior of firms and households.
To systematically monitor and assess the impact of supply disruptions on the domestic economy, the author developed the Philippine Supply Pressure Index (PSPI), a localized surveillance tool designed to estimate the impact of supply-related shocks on domestic prices and inflation expectations. Results from the impulse response function based on local projections suggest that shocks captured by the PSPI have a significant, albeit delayed, impact on headline inflation, core inflation, and professional forecasters’ inflation expectations.