2017 inflation hit 3-year high of 3.2%

Inflation rose to a three-year high of 3.2 percent in 2017 mainly as the prices of food and utilities as well as transportation costs increased faster last year, the government reported Friday.

In a report, the Philippine Statistics Authority (PSA) said headline inflation in December went up 3.3 percent year-on-year, similar to the rate posted in November but higher than the 2.6 percent recorded in December 2016.

Amid the Christmas holiday season, PSA data showed that prices of alcoholic beverages and tobacco rose 6.4 percent year-on-year last month; food and non-alcoholic beverages, up 3.5 percent; restaurant and miscellaneous goods and services, up 3 percent; and furnishing, household equipment and routine house maintenance, up 1.9 percent.

For the entire 2017, the average rate of increase in prices of basic goods jumped from 1.8 percent in 2016 as well as the record-low 1.4 percent in 2015.

The low inflation rates in the two preceding years, which fell below the government’s yearly target range of 2-4 percent, reflected the impact of the sharp drop in global oil prices during the period.

As the price of oil normalized worldwide, domestic prices of housing, water, electricity, gas and other fuels increased 3.2 percent in 2017, reversing the 0.2-percent decline in 2016, PSA data showed.

The PSA said six other commodity groups also registered faster price increases last year, namely: alcoholic beverages and tobacco (up 6.2 percent); food and non-alcoholic beverages (up 3.7 percent); transport (up 3.3 percent); restaurant and miscellaneous goods and services (up 2.2 percent); furnishing, household equipment and routine maintenance of the house (up 2.1 percent); and communication (up 0.2 percent).

The food alone index rose 3.7 percent in December and increased by a faster 3.8 percent for the full-year 2017, higher than 2016’s 2.6 percent.

Last year, fish prices jumped by a tenth; corn, up 7.2 percent; meat, up 5.9 percent; fruits, up 4.2 percent; other cereals, flour, cereal preparation, bread,  pasta and other bakery products, up 1.9 percent; and rice, up 1.1 percent.

Despite the pick up in consumer prices, the state planning agency National Economic Development Authority noted that the average inflation rate in 2017 was well within the 2-4 percent target.

“We see inflation over the near term to remain stable despite pressures that may be brought about by the newly enacted TRAIN program, weather patterns, and uncertainties in international oil markets,” said Socioeconomic Planning Secretary Ernesto M. Pernia, referring to the Tax Reform for Acceleration and Inclusion Act (TRAIN).

President Duterte last Dec. 19 signed into law package 1A of the TRAIN, which starting January 1 this year slashed and restructured personal income tax rates that stayed the same for two decades, while also jacking up or slapping new taxes on the consumption of oil, cigarettes, sugary drinks and vehicles.

“To relieve the inflationary effects of the TRAIN, the government needs to prioritize amending domestic laws that will end quantitative restrictions on rice and replace them with tariffs,” Pernia said.

“This measure will remove the policy uncertainty in rice trade and thus encourage more investments in production and post-production innovation. The revenues from the tariff can be used to fund or subsidize such innovations,” the Neda chief explained.

Bangko Sentral ng Pilipinas and Department of Finance estimates had shown that removing the rice import quota and instead slapping a 35-percent tariff on the Filipino food staple would offset the increase in inflation resulting from the TRAIN.

“In the meantime, efforts must be made to strengthen the resiliency of farmers from extreme weather conditions to maintain the stability of food prices. One is by shifting to climate change-ready rice varieties,” according to Pernia.

Also, “any increases in prices in the first few months of 2018 will be tempered by the expected decline in power rates as capacity fees from power generators fell due to fewer power outages,” the Neda chief said.

“The timely implementation of the ‘Build, Build, Build’ program will also be critical in bringing down electricity and transportation costs over the medium term,” he added.

Under the ambitious “Build, Build, Build,” the government plans to roll out 75 flagship, “game-changing” projects, with about half targeted to be finished within President Duterte’s term, alongside plans to spend up to P9 trillion on infrastructure until 2022 to usher in “the golden age of infrastructure.”