Inflation up on higher ‘sin’ tax, oil prices

Inflation in January likely jumped to another high partly due to the mandated increase in excise taxes on so-called “sin” products, Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said  on Thursday.

“The BSP forecast suggests that January inflation could settle within the 2.3-3.2 percent range. Downward price pressures include a slight decline in rice prices and lower power rates in Meralco-serviced areas,” Tetangco said in a text message to reporters.

“However, higher domestic prices of gasoline, diesel and LPG as well as the excise tax adjustments for alcoholic beverages and tobacco products would likely exert upside pressures on inflation during the month,” Tetangco added.

Under Republic Act No. 10351 or the Sin Tax Reform Law, tobacco products were slapped a unitary and higher rate of P30 a pack starting Jan. 1, 2017, following a two-tier system last year wherein cigarettes priced P11.50 a pack or lower were taxed P25 while those priced higher were slapped P29 a pack.

For alcohol products, the excise tax rose this year to also a unitary rate of P23 a liter from P21 for products priced P50.60 or less a liter and P23 for those priced above P50.60 a liter last year.

In December, inflation hit a two-year high as the holiday season pushed up food prices, although the average rate for the entire 2016 fell below the government target for the second straight year.

Headline inflation last month rose to 2.6 percent year-on-year, the fastest since December 2014’s 2.7 percent.

But even as the rate of increase in prices of basic goods peaked last December, the full-year average settled at 1.8 percent, below the government’s 2-4 percent target range for 2016. The full-year figure matched the BSP’s forecast but was higher than the actual 2015 rate.

In 2015, inflation averaged 1.4 percent, also below target. In a Jan. 20 letter to President Duterte, Tetangco said “the latest baseline forecasts of the BSP continue to indicate that inflation is likely to return gradually to a path consistent with the inflation target in 2017-2018.”

“We expect inflation to continue gathering pace in the year ahead, with international oil prices seen to increase as a result of recent agreements by producers to reduce output,” Tetangco explained.