Inflation up 4% in January
As average consumer prices increase due to the new or higher excise taxes slapped on a number of products under the Tax Reform for Acceleration and Inclusion (TRAIN) Act, inflation rose 4 percent year-on-year in January, the government reported Tuesday.
Philippine Statistics Authority (PSA) data showed that the rate of increase in the prices of basic goods last month was the fastest since the 4.3 percent posted in October 2014.
The headline inflation rate in January already settled at the top end of the government’s 2-4 percent target range for 2018.
“The higher January 2018 reading was expected by the BSP although it is at the top end of our forecast for the month,” Governor Nestor A. Espenilla Jr. said in a text message to reporters, referring to the central bank’s forecast of 3.5-4 percent for the month.
Espenilla attributed the pickup in inflation mainly to “combined first round effects of the TRAIN, oil prices, and food to some extent.
Signed by President Duterte in December, the TRAIN Law starting Jan. 1 jacked up or slapped new excise taxes on oil, cigarettes, sugary drinks and vehicles, among other goods, to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of P250,000.
“We think these are temporary drivers of inflation and would eventually stabilize. Nevertheless, the BSP (Bangko Sentral ng Pilipinas) will be closely monitoring the situation and stand ready to take timely action based on our evaluation of all relevant data,” Espenilla said.
Finance Secretary Carlos G. Dominguez III told reporters: “I have to look at the figures closely but find it hard to believe that the implementation of the 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.”
The acceleration of the inflation rate in January caught market watchers off guard and prompted speculation that the central bank would hike its key interest rates when the policy making Monetary Board convened on Thursday.
“BSP could hike rates as early as Thursday following the surge in January headline consumer price index,” Bank of the Philippine Islands lead economist Jun Neri said in a post on Twitter following the inflation announcement.
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