Economist warns inflation to remain high in 2018

By Jose Santino S. Bunachita March 07,2018

The price of fuel continues to increase almost daily due to the new excise tax on petroleum products.
CDN FILE PHOTO

The effects of the government’s first tax reform package will continue to be felt by Cebuanos and Flipinos in general.

Cebu-based economist Fernando “Perry” Fajardo explained that while the Tax Reform for Acceleration and Inclusion (Train) law may have cut down on personal income taxes of workers, it has pushed companies to increase the prices of other consumer goods.

And the poor, who do not get regular income from employers, do not benefit from the income tax perk.

“The worse part is that the poor do not gain anything from the income tax reduction due to the Train. But they are punished by higher prices due to the Train’s new and higher excise taxes on a number of goods patronized by the poor,” he told Cebu Daily News.

Fajardo gave the statement in reaction to the report by the Philippine Statistics Authority (PSA) released on March 6 that showed that the country’s inflation rate has risen to 3.9 percent in February.

The PSA data showed that using 2012 as the new base year, the headline inflation rate jumped to 3.9 percent last month. This was the fastest rate of increase in prices of basic goods since August 2014, which was recorded at 4.2 percent.

Using the old consumer price index (CPI) series based on 2006 prices, inflation hit 4.5 percent, which is an over three-year high.

“The uptrend resulted from the faster annual gain recorded in the heavily-weighted food and non-alcoholic beverages index at 4.8 percent and the double-digit annual increment in alcoholic beverages and tobacco index at 16.9 percent,” the PSA explained in an Inquirer report.

Loss in purchasing power

According to Fajardo, the country’s rising inflation rates is expected to continue in the coming months.

“It will be bad for Cebuanos whose average family income is lower than the national average. In 2015, our average (annual) family income was only P239,000 whereas it was P267,000 nationally,” he said.

Asked to explain the specific effects of the higher inflation rate, Fajardo said that having a 3.9 percent inflation rate with no increase in income would mean a person’s purchasing or buying power is cut down by the same 3.9 percentage.

This is equivalent to losing 3.9 percent of your income, he added.

The Train law has also increased or added new excise taxes on oil, cigarettes, sugary drinks and vehicles, among other goods.

Under the Train law, unitary excise tax on cigarettes, for example, rose to P32.50 per pack from only P30 per pack last year. This was effective January 1.

The law, which was signed by President Rodrigo Duterte in December and made effective last January 1, also mandated further increases in the cigarette excise tax rates to P35 per pack from July 1, 2018 to December 31, 2019; P37.50 per pack from January 1, 2020 to December 31, 2021; and P40 per pack from January 1, 202 to December 31, 2023.

This was done to compensate for the restructured personal income tax wherein those with an annual salary of P250,000 or less will not have to pay income tax anymore.

The PSA said that prices in four other commodity groups also increased in February namely: clothing and footwear (2 percent); furnishing, household equipment and routine maintenance of the house (2.5 percent); transport (5.8 percent); and restaurant and miscellaneous goods and services (2.5 percent).

Lower annual hikes were, however, noticed in the indices of housing, water, electricity, gas and other fuels, at 2.6 percent; communication, 0.2 percent; and recreation and culture, 1.4 percent,” the PSA said.

“A faster annual mark-up of 4.8 percent in February was, likewise observed in the food alone index at the national level. It was pegged at 4.6 percent in the previous month and 3.2 percent in February 2017,” the PSA added.

Prices to stabilize by 2019

On the other hand, the Bangko Sentral ng Pilipinas (BSP) said the pace of increases in the prices of goods and services in the country is expected to normalize by 2019.

But for the rest of the year, it will likely remain high, confirming the suspicions of Fajardo.

In a separate Inquirer report, BSP Gov. Nestor Espenilla Jr. downplayed the possibility of a preemptive rate hike on the part of monetary regulators as a means to combat inflation. He said any policy tightening done today will be felt only in 2019 instead of this year.

“Let’s not forget that monetary policy operates with a long lag. Whatever monetary policy action we do now, will more likely be felt in 2019 and beyond rather than 2018. That’s why we don’t necessarily react to February 2018 but must look much further ahead and rely on forecasts,” he said.

Espenilla said the inflation rate for February is part of the BSP’s updated forecast for a “temporarily high inflation than target range in 2018 due to transitory factors.”

The BSP expects inflation to decelerate back to within target in 2019.

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