INFLATION: Challenges and Threats to Economic Growth in ASEAN

Abstract

The purpose of this paper is to examine the threats and challenges of inflation faced by the ASEAN economies. The data used in this study included historical data of inflation rates, GDP growth, and exchange rates. The sample size came from 550 weeks of weekly exchange rate. This paper employed autoregressive model to obtain predictive functions of inflation and its effects under ERPT and the Prospect Theory. The average inflation for the group is 6.433 ± 3.98, as compared to the GDP growth rate of 4.144 ± 1.37. There is a short fall of 2.289 percent; this is a significant creeping inflation (p = 0.047). Among the ASEAN countries, only Philippines showed significant economic growth (p = 0.043). Inflation rates for the US and EU area are 8.6 percent and 8.98 percent. These major economies are expected to grow by 2.0 and 2.7 percent respectively. In contrast, the expected economic growth for ASEAN is 5.51 percent and the expected inflation is 10.41 percent. Inflation in the ASEAN exceeds economic growth by 4.10 percent. ASEAN's economic growth is threatened by inflation. Lacking unified policies, ASEAN countries are left to tackle these problems.