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Sin taxes stoke Philippine inflation

Apr 06. 2018
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CONSUMER prices in the Philippines rose by 4.3 per cent in March, the fastest since August 2014 and above the government’s target range for 2018, partly due to the double-digit jump in prices of so-called sin products last month, the Philippine Statistics Authority said.

Reacting to the latest inflation report, the Bangko Sentral ng Pilipinas – the country’s central bank - finally hinted at acting against the accelerating pace of price increases.

BSP governor Nestor Espenilla, in a mobile phone message to reporters, said the Monetary Board—whose seven members meet every six weeks to determine the level of domestic interest rates, and consequently help manage the inflation rate—was tasked to “carefully evaluate the appropriateness of a measured policy response.”

This response, he said, was meant to “firmly anchor” inflation expectations to the central bank’s insistence that its targets for the rate of increases in the prices of basic goods and services ” would continue to be met in 2018 and 2019”.

“There’s a pick-up in inflation that we recognise,” Espenilla said, adding that financial markets were already factoring this in their assumptions.

In the meantime, UK-based Oxford Economics said the headline inflation rate could hit seven-year high levels this year, such that the BSP would likely raise rates twice.

A report of the PSA on Thursday showed that the rate of increase in the prices of basic goods last month was faster than the 3.1 per cent posted in March last year and the revised 3.8 per cent in February.

As such, nationwide inflation averaged 3.8 per cent in the first quarter, near the upper end of the 2-4 per cent target range for the year.

Based on data reflecting 2012 prices as base, inflation in March was the highest since 2013, as data before that year were not yet available.

The PSA’s price statistics division said that historical data up to 1957 would be released in September.

Using the old base of 2006 prices, last month’s inflation was 4.8 per cent, the highest since the 4.9 per cent in both July and August 2014.

In the National Capital Region, headline inflation rose 5.2 per cent year-on-year in March, up from 3.9 per cent a year ago and 4.7 per cent a month ago, bringing the first quarter average to 4.8 per cent, PSA data showed.


The PSA report showed that among major commodity groups, prices of alcoholic beverages and tobacco rose the fastest in March, jumping 18.6 percent year-on-year.

Prices of food and non-alcoholic beverages rose 5.9 per cent; restaurant and miscellaneous goods and services, up 3 per cent; housing, water, electricity, gas and other fuels, up 2.9 per cent; furnishing, household equipment and routine maintenance of the house, up 2.7 per cent; health, up 2.4 per cent, and communication, up 0.3 per cent.

Earlier, the Department of Finance blamed “tax issues” for the steep climb in prices of so-called sin products such as cigarettes and tobacco, last month in view of the the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Act and the Sin Tax Reform Act of 2012.

Signed by President Rodrigo Duterte in December, Republic Act No. 10963 or the TRAIN law jacked up or slapped new excise taxes on cigarettes, oil, sugary drinks and vehicles to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of 250,000 pesos.

Also, the excise taxes on alcoholic drinks increased at the start of the year as mandated under the Sin Tax Reform Law.

In an April 3 research note, Oxford Economics said that “inflationary pressures are already more evident in India and the Philippines”.

 “Consequently, we expect the Reserve Bank of India and BSP to raise rates twice this year,” Oxford Economics said.


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