Inflation accelerated to a fresh over five-year high of 5.7 percent in July, the government reported Tuesday.
As such, headline inflation or the rate of increase in prices of basic goods and services averaged 4.5 percent during the first seven months, above the government’s full-year target range of 2-4 percent for 2018.
The seven-month average already hit the upper end of the Development Budget Coordination Committee’s forecast of 4-4.5 percent.
Economists earlier project faster inflation last month on increased transportation costs as well as higher cigarette prices.
To recall, the minimum jeepney fare was hiked to P9 from previous P8 since July 9.
Also, cigarette excise tax further rose to P35 per pack starting July under the Tax Reform for Acceleration and Inclusion (TRAIN) Act.
Last January 1, the unitary excise tax slapped on cigarettes rose to P32.50 per pack from P30 a pack last year.
Signed by President Duterte last December, the Train Law or Republic Act No. 10963 jacked up or imposed new excise taxes on cigarettes, sugary drinks, oil products and vehicles, among other goods, since the start of 2018 to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of P250,000.
Don’t blame Train
But a Department of Finance (DOF) official clarified that the spike in inflation in July could not be blamed on the TRAIN law but on high prices of imported crude oil and rice.
“I don’t think so, because how much is diesel today? I think P14 more expensive than December, Train only added P2.50 per liter,” DOF Undersecretary Karl Chua said in an interview with reporters after the House hearing on Tuesday.
Chua said that prices of commodities would likely fall in the coming months as the rate had slowed down, despite an increase on a year-on-year basis.
“(Inflation) Year-on-year is higher, month-on-month has fallen, signifying maybe the start of price stabilization, the situation is largely similar to June, the main drivers are international adjustment in oil pass, some pass through from the exchange rate, also because of the scarcity of fish,” he said.
Chua added that they have observed that in regions where the agriculture industry is flourishing, inflation is not as high as the nationwide figures.
“Rice is still in the top contributor to inflation. Surprisingly, one region recorded 2.7 percent inflation — Central Luzon, signifying that a very productive rice sector and agriculture is key to bringing food prices down,” he explained.
Interest rate hike
Aside from that, the Bangko Sentral ng Pilipinas (BSP) is also expected to implement an aggressive interest rate increase later this week — possibly by as much as 50 basis points.
BSP Governor Nestor Espenilla Jr. said in a statement on Tuesday that last month’s near the top end of the central bank’s 5.1-5.8 percent forecast — will weigh heavily on the Monetary Board when it convenes on Thursday.
“We will consider all the latest data updates in determining the strength of our follow-through response in the upcoming policy meeting,” he said.
“The July 2018 actual inflation is at the high end of our July forecast but remains consistent with our expectation of elevated inflation prevailing in 2018 that will return to the target range by 2019,” Espenilla added.
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