INTEREST-rate increases alone cannot fully contain inflation when price pressures originate from global supply-chain disruptions as structural trade vulnerabilities limit the effectiveness of monetary policy, a new study by the Asean+3 Macroeconomic Research Office (Amro) posited.
In its paper examining inflation dynamics in the five largest Southeast Asian economies, the Amro found that while tighter monetary policy can reduce inflationary pressures, it cannot directly resolve supply-side constraints such as imported-input shortages and logistics disruptions.
The study analyzed the transmission of global supply-chain pressures across the Asean-5 economies-Indonesia, Malaysia, the Philippines, Singapore, and Thailand-using empirical data and a structural economic model calibrated to Indonesia.
The economists of the organization founded by the five founding and most economically developed member states of the Association of Southeast Asian Nations (Asean) explained that inflation triggered by supply-chain disruptions tends to emerge gradually and persist over the medium term.
Their research also distinguished between trade openness and trade vulnerability. Hence, they concluded that economies more exposed to disruptions in global value chains face stronger and longer-lasting inflationary pressures than those that are simply more open to trade.
According to the study, trade openness alone does not significantly amplify inflation once domestic and global economic conditions are taken into account.
Instead, inflation becomes more persistent in economies that rely heavily on imported intermediate goods, particularly during periods of heightened global trade volatility.
The study said monetary policy can influence how these external shocks are transmitted to domestic prices, but its ability to stabilize inflation is constrained when disruptions stem from supply shortages rather than demand.
‘A weaker policy response is associated with more persistent pass-through from imported costs to inflation, while a stronger policy response dampens inflation and marginal-cost persistence,’ author Sekar Utami Setiastuti wrote.
‘However, tighter policy cannot directly remove imported-input bottlenecks or the supply-side origin of the shock, and it does not fully offset the contractionary consequences when trade vulnerability is high or when global supply-chain volatility is elevated,’ she added.
The findings come as central banks across the region, including the Philippines, continue to grapple with inflation driven by external risks, including geopolitical tensions, supply disruptions and higher commodity prices. (See: https://businessmirror.com.ph/2026/07/09/all-inflation-scenarios-pointto-need-to-hike-rates-bsp/)
The Bangko Sentral ng Pilipinas (BSP) said easing demand and lower oil prices have tempered inflationary pressures, but some monetary tightening remains necessary, following cumulative 50-basis-point policy rate hikes in April and June that brought the target reverse repurchase rate to 4.75 percent.
According to the study, periods of elevated global trade volatility amplify the impact of supply-chain disruptions, resulting in larger and more persistent increases in firms’ production costs and consumer prices.
The paper also noted that external adjustments, including weaker imports and exchange-rate movements, help cushion part of the shock but do not eliminate inflationary pressures.
Amro said the results underscore that inflation resulting from global supply-chain disruptions depends not only on monetary policy but also on structural characteristics such as production networks, reliance on imported inputs and exposure to global logistics conditions.
The study acknowledged several limitations, including that its structural model was calibrated to Indonesia rather than estimated across all ASEAN-5 economies.
It recommended future research incorporate country-specific production structures, policy frameworks and trade networks to better assess how supply-chain disruptions affect inflation across the region.