Inflation to slow down toward yearend

Socioeconomic Planning Secretary Ernesto Pernia is one with private economists in saying the country’s inflation rate is expected to increase in the coming months due to the tax reform program but will slow down toward the end of the year.

“In the coming months, we will feel the effect of price increases but then in the later part of the year, we expect the inflationary impact to taper out,” Pernia, also National Economic and Development Authority (NEDA) Director-General, told reporters.

The country’s inflation rate accelerated to 4 percent in January 2018, 7 percentage points higher from previous month’s 3.3 percent.

Pernia attributed the 2 percentage point increase partly to the implementation of Tax Reform for Acceleration and Inclusion (TRAIN) due to increases in fuel prices and sweetened drinks, as well as to the lingering effects of last quarter’s typhoons to food prices.

“But it’s going to be short-lived. It’s going to taper out over the months, in the next quarters. That is just the initial reaction. And maybe, merchants may have been taking advantage of the increase in prices because it’s expected,” he said.
The NEDA chief further said the Development Budget Coordinating Committee (DBCC) had no plan yet to revise its 2018 inflation target.
The DBCC maintained the target inflation range for 2018 to 2020 at 2 to 4 percent.
“We will see how persistent the inflationary pressures are,” Pernia said.
The TRAIN law, which was implemented starting January this year, lowered personal income taxes resulting to higher tax home pay but imposed higher taxes also on automobiles and tobacco.
Meanwhile, a private economist sees Philippines 2018 inflation rate peaking in the first half of the year due to the expected second-round effects of the government’s tax reform program.
ING Bank Manila senior economist Joey Cuyegkeng told reporters after the bank’s economic briefing for clients Wednesday that inflation risks had risen as proven by the unexpected faster inflation rate last January at 4 percent from month-ago’s 3.3 percent.
Economists are attributing this uptick partly to the implementation of the first package of tax reform, which hiked excise taxes on oil and sugar-sweetened beverages, among others, to counter the cut in workers’ income tax.
Cuyegkeng said second-round effects, or the market reaction on the rise in the prices of oil and some commodities, was seen to go up, especially in the next three months.
“But this depends on how much regulators will allow it,” he said, citing that monetary officials, for one, would not allow inflation to go beyond their target range.
Oil prices continue to go up as a result of the same trend in the international market, with Asian crude oil prices seen to rise by around 20 percent this year.
Since the start of the year, most domestic oil companies have increased prices by at least six times, with gasoline prices up by about PHP2.30 per liter.
There remain pending wage hike petitions since last year, but regulators have yet to act on it.
With inflation seen to go beyond the government’s target following the inflation rate level last January, Cuyegkeng also revised his projection for the increase in the Bangko Sentral ng Pilipinas’ (BSP) key from 50 basis points this year to 75 basis points, or three rate hikes at 25 basis points each.
He said the rate hikes may start this March instead of the earlier projection of May.
“(The rate hikes will be done) to anchor inflation expectations and remove the anxiety of the markets,” he said.
Aside from faster headline inflation rate last January, core inflation, which excludes adjustments of the volatile food and oil index, also registered a faster rate of 3.9 from last December’s 3 percent.
With this development, Cuyegkeng revised the bank’s average inflation forecast for this year from 3.7 percent to at least 4 percent while next year’s average is projected at 3.5 percent on lesser pressure amid the additional excise tax increases.