(DP 2026-03) Oil price pass-through in the Philippines: decomposing fuel and non-fuel inflation

Abstract

This paper estimates the pass-through of world oil price innovations to Philippine fuel prices and headline CPI, and decomposes total CPI pass-through into a fuel-basket component and a residual non-fuel component. Using a structural VAR and 25 years of monthly pump price data, I find that a 10 percentage point increase in year-on-year oil price growth is associated with about a 4.9 percentage point increase in gasoline price growth and a 6.6 percentage point increase in diesel price growth at 12 months, while the corresponding effect on headline CPI inflation is about 0.65 percentage points. The residual non-fuel component accounts for the larger share of the CPI response, though its estimated magnitude is somewhat sensitive to the estimation method. Results are robust to extensions with the exchange rate and rice prices, local projections with HAC inference, alternative data transformations, sub-period splits around the TRAIN Law, and an alternative pump price series.

JEL Codes: E31, Q43, C32, F31