DOF blames weak peso, profiteering for high February inflation

While the fresh over three-year high inflation rate in February reflected the impact of higher taxes on consumption under the first tax reform package, the Department of Finance (DOF) has pointed to the weak peso as well as profiteering as bigger culprits.

In an economic bulletin on Thursday, DOF Undersecretary and chief economist Gil S. Beltran attributed last month’s faster inflation rate mostly to higher prices of rice as well as restaurant charges for the sugar-sweetened beverages being sold.

Last Tuesday, the government reported that headline inflation in February hit 3.9 percent using 2012 as the new base year, the fastest rate of increase in prices of basic goods since August 2014’s 4.2 percent.

Using the old consumer price index (CPI) series based on 2006 prices, inflation hit 4.5 percent, also an over three-year high, as prices of food and beverages as well as “sin” products continued to increase partly as a result of the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

Also, Beltran said that fuel and transport costs in February rose on the back of an 18-percent jump in global prices.

“Of food items, the biggest increase came from rice, by 0.12 percentage point as rice prices rose by 2.8 percent in February from 1.5 percent last January. This is due to the National Food Authority’s withholding of rice supply from commercial outlets, thus leaving consumers to purchase higher-priced commercial rice,” Beltran noted.

Prices of non-alcoholic beverages also rose by 0.03 percentage point as prices rose to 4.8 percent last month from 2.8 percent in January due to the new excise tax slapped on sugary drinks, Beltran said.

“Alcoholic beverages and tobacco increased by 0.09 percentage point as this commodity group raised prices by 16.9 percent from 12.2 percent in January due to the 4-percent sin tax adjustment and improved tax compliance by a major producer,” Beltran added, referring to Mighty Corp., which is now owned by Japan Tobacco International.

As for non-food items, “restaurants and miscellaneous services, rose by 0.24 percentage point as restaurants adjusted prices due to higher prices of food inputs including sugar-sweetened beverages,” according to Beltran.

In the case of oil products, Beltran said that “transport fuel price adjustments were due primarily to higher world prices of petroleum products.”

Beltran also said “only a little less than 10 percent could be attributed to excise tax adjustment under TRAIN.”

“World petroleum prices rose to $63 per barrel in January to February from $53.5 per barrel the year before, an 18-percent increase. Add to this the 2.6-percent exchange rate depreciation in January and February (from P49.85:$ to P50.5) and the total adjustment should be 20.8 percent vs. 7.2-percent actual adjustment,” Beltran explained.

President Rodrigo Duterte signed the TRAIN Law or Republic Act No. 10963 in December 2017. The law implemented starting January 1, 2018 new excise taxes that jacked up prices of 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.

For DOF Undersecretary Karl Kendrick T. Chua, “TRAIN has begun to impact inflation as expected, though other factors are the bigger contributors to higher inflation.”

“Since prices of excisable products are growing as expected, the only reason for higher overall inflation is a combination of higher global crude price, the peso’s depreciation, and profiteering,” Chua said.                           /kga