Consumer prices rose at the fastest rate in more than three years, following the implementation of the government’s new tax measures and the upward spike in petroleum and food prices.
The Philippine Statistics Authority said inflation rate climbed to 4 percent in January from 3.3 percent in December and 2.7 percent a year ago. It was also the fastest increase in prices since October 2014 when inflation hit 4.3 percent.
“The push in inflation is partly due to Train [Tax Reform for Acceleration and Inclusion], considering particularly the excise on fuel and additional ‘sin’ taxes,” Economic Planning Secretary Ernesto Pernia said in a statement.
Rising food and non-alcoholic beverage prices along with a series of typhoons late last year that crimped supplies of farm products, led to the higher inflation in January, Pernia said.
Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said while the higher January inflation was expected, it was at the top end of the bank’s forecast for the month.
“[It was] due mainly to combined first-round effects of Train, oil prices and food to some extent,” Espenilla said.
“Nevertheless, BSP will be closely monitoring the situation and stand ready to take timely action based on our evaluation of all relevant data,” he said.
The first phase of the tax reform program took effect in January after President Rodrigo Duterte signed it into law in December. The new law cut personal income taxes but raised excise taxes on fuel, coal, minerals, automobiles, alcohol, tobacco and sweetened beverages.
Finance Secretary Carlos Dominguez III said he found it “hard to believe that the implementation of Train, which went into effect on Jan. 1, 2018, had any significant effect on prices, unless of course merchants took advantage of the law and raised prices on old inventories.”
ING Bank Manila senior economist Joey Cuyegkeng said in a report that the upside inflation surprise would lead to adjustments in inflation expectations.
“We are reviewing our 2018 average inflation forecast of 3.7 percent for an upward revision likely to be at least at the top end of BSP’s inflation target range of 2 percent to 4 percent. Second-round effects are still to be determined by regulators,” Cuyegkeng said.
He said the second-round effects would likely push inflation higher within the year. “We think that BSP would need to anchor inflation expectations. Aside from second-round effects from the initial increases in excise taxes, further increases in excise taxes in 2019 would keep inflation elevated,” he said.
Cuyegkeng said the likelihood of a tightening move by the policy-making Monetary Board on Thursday had increased significantly. “We are now looking at advancing the timing of our rate hikes and are reviewing our two-rate hike forecast for 2018,” he said.
Data from the PSA showed the higher January inflation was primarily due to the higher annual increment in the heavily-weighted food and non-alcoholic beverages index, which accelerated 4.5 percent from previous month’s growth of 3.5 percent.
Moreover, the index for alcoholic beverages and tobacco registered double-digit annual mark-up at 12.3 percent in January, up from 6.4 percent in December 2017.
Higher annual increases were also recorded in the indices of furnishing, household equipment and routine maintenance of the house, 2 percent; transport, 3.2 percent; and restaurant and miscellaneous goods and services, 3.7 percent.
The other commodity groups either had slower annual add-ons or retained their previous month’s rate.
“Excluding selected food and energy items, core inflation picked up by 3.9 percent in January 2018. In the previous month, core inflation was observed at 3 percent and during the same month in 2017, at 2.5 percent,” PSA said.
DBS Bank of Singapore said the policy-setting Monetary Board of BSP might raise the prevailing interest rates in its meeting on Thursday due mainly to the accelerating inflation rate. With AFP