THE Department of Finance (DoF) said inflation is expected to be contained at the high end of the target range, or 4%, for the full year, noting that a heightened January reading was the result of stores overshooting regulated prices.
“We think that it will taper off. It’s because, in January, when the Department of Trade and Industry (DTI) and the Department of Energy (DoE) conducted a monitoring, and many were caught setting prices beyond the SRP [suggested retail prices],” Mr. Chua said in a briefing at Malacañang on Thursday, March 1.
He added, “So they have been warned… I think we can hit our target of no more than 4% for the full year.”
In a statement, the National Economic and Development Authority (NEDA) said that its officials along with those of the Department of Finance (DoF), Bangko Sentral ng Pilipinas (BSP), and leading economists who attended Monday’s meeting of the Senate Committee on Economic Affairs, chaired by Sen. Sherwin T. Gatchalian, “were in consensus that several factors have pushed inflation up in January, and the tax reform that has recently taken effect has little to do with it.”
Socioeconomic Planning Secretary Ernesto M. Pernia, who was present at the hearing, noted that “based on the agency’s calculations, only 0.7% (at most) of inflation for 2018 is attributable to the effects of the Tax Reform for Acceleration and Inclusion (TRAIN) law.”
Mr. Chua confirmed this at the briefing, saying “if there is any higher inflation that we have seen, it’s probably due to other reasons.”
“In fact, what we see is that, in petroleum, although the inflation of petroleum products is 7.2%, none of that was caused by TRAIN because the peso’s depreciation is 1.5%, and the Dubai crude increased by 19.6%. In fact, if we look at month-on-month inflation, meaning, the change in price from December to January, we actually saw it to be slightly negative at 0.8%. So there’s no way for TRAIN to have caused the higher petroleum prices. In fact, it is due to the peso’s depreciation and the higher Dubai crude,” he said, also noting that sugar-sweetened beverage inflation of 2.8% was expected.
As for inflation in alcohol products of 4.8%, “it is expected given the scheduled 4% increase under the sin tax law,” Mr. Chua said.
“So the main message is, if these products that are affected by TRAIN hardly increased and the only reason why petroleum increased is Dubai crude, and all other products increased, there must be something else that’s driving the increase and not TRAIN. That is the key message,” he said.
At the Senate hearing, NEDA also “took note of the rise in the price of rice which accounts for around 23% of the poor consumer’s basket of goods.”
“We have to closely monitor the buffer system of rice to ensure that there is no considerable spike in the price of rice,” NEDA Secretary Ernesto M. Pernia said.
NEDA Undersecretary for Policy and Planning Rosemarie G. Edillon, for her part, attributed the increase in the prices of corn and meat “to typhoons that hit the country in December last year.”
“Part of the reason for the recent inflation is expectations that the tax reform would indeed increase prices. These inflationary expectations can be tempered by further increasing the supply of goods and services. This can be done by encouraging more investments or for existing firms to expand production. For these, the second round of tax reform, or TRAIN 2, is critical. This should be accompanied by the passage of the ease of doing business bill,” Ms. Edillon said.
Mr. Pernia noted that “it is also possible that certain merchants have taken advantage of the situation by raising the prices of their goods prematurely.”
“It is so easy to point a finger at TRAIN,” he said.
Mr. Chua said the fear that TRAIN will lead to an escalation of food prices “is not supported.”
“Overall food inflation was 4.52%, albeit at the high end and could suggest some profiteering as oil prices have not even increased due to TRAIN. In particular, rice inflation was only 1.4%. Fish inflation was higher at 12% but this likely reflects the closed season of fishing (November to February) and a recent typhoon in the Visayas,” the DoF official said.
Mr. Chua noted as well that one reason for higher inflation is better compliance on tobacco taxes.
“Tobacco inflation was 17.4% in January 2018 when the expected increase was only 8% due to the scheduled tobacco tax increase. Since profiteering is unlikely, the remaining reason is that Mighty (Corp.) under Japan Tobacco is now paying the right tax, and thus is charging higher prices for cigarettes.”
“In fact, if Mighty continued to evade tax and therefore cigarettes prices remain low, overall inflation would have gone down around 3.75%.”
Commenting on the first two months of the implementation of TRAIN package 1, Mr. Chua said: “In general, it was quite successful.”
“We gave P10 billion per month at least to working people and that’s fueling a lot of the positive consumer expectation. The revenue collections in the first two months are on target, and our inflation has remained manageable. And of course, we will continue to monitor and make sure that the fruits of TRAIN are going to be well-spent.”
Mr. Chua likewise noted that the government has not yet encountered any major challenges in the implementation of the tax reform law.
“We prepared for 18 months, it was well-consulted, everyone in government contributed. If there are challenges then, I think it would be easy to address,” he said. — Arjay L. Balinbin