DOF: Inflation likely rose 3.3% in January

Inflation likely rose by a faster 3.3 percent in January, the Department of Finance said Tuesday, as the month marked the start of the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

While the rate of increase in prices of basic goods at the start of the year likely matched December 2017’s 3.3-percent rise, it was projected to be faster than the 2.7 percent posted in January last year, a DOF economic bulletin showed.

Based on the DOF’s computations, inflation of food and non-alcoholic beverages in January inched up 3.5 percent from 3.4 percent a year ago.

The prices of alcoholic beverages and tobacco also increased by a faster 6.7 percent year-on-year in January from a year ago’s 5.6 percent.

Under TRAIN or Republic Act No. 10963, the unitary excise tax slapped on cigarettes rose to P32.50 per pack effective Jan. 1 from P30 a pack last year.

The TRAIN mandated a further increase in the cigarette excise tax rates to P35 per pack from July 1, 2018 to Dec. 31, 2019; P37.50 a pack from Jan. 1, 2020 to Dec. 31, 2021; and P40 from Jan. 1, 2022 to Dec. 31, 2023.

Meanwhile, prices of non-food items also rose by a faster 2.9 percent in January from 2 percent in the same month last year.

Housing, utilities and fuels’ inflation rose 3.5 percent compared with 1.8 percent a year ago, while that of electricity, gas and other fuels jumped 6.8 percent from last year’s 2.5 percent.

Transport costs also increased by a faster 3.1 percent in January, compared with a year ago’s 2.4 percent.

The costs of availing restaurant and miscellaneous services likely rose by a faster 3.1 percent compared with 2.2 percent in January last year.

In general, “inflation of food and non-food items [in January] was steady despite the rise in the transport rate which is a lagged response from last month’s fuel rate hike,” the DOF said.

“Declines in housing, utilities and fuels, clothing and footwear, and recreation and culture all contributed to offset the upward pressure from the transport sector,” the DOF added.

“Good economic growth maintains stable prices and in turn, provides stimulus for further growth. This virtuous cycle tempers adverse external pressures arising from petroleum and transport inflation,” according to the DOF.

Economic growth slowed to 6.7 percent in 2017 due to the lack of election-related spending boost, although the Philippines remained among the fastest-growing emerging economies in the region.

The TRAIN slashed and restructured personal income tax rates that stayed the same for two decades, while also jacking up or slapping new taxes on consumption of oil, cigarettes, sugary drinks and vehicles.

In December, the Cabinet-level Development Budget Coordination Committee kept the 2-4 percent inflation target for the medium term despite the short-term inflationary impact of the TRAIN.

According to Monetary Board member Felipe M. Medalla, the TRAIN’s long-term effect is actually anti-inflationary.

“To the extent that the infrastructure will reduce transportation costs and increase productivity, in the long run, the TRAIN should reduce the inflation rate,” Medalla explained.

The TRAIN, alongside domestic and foreign borrowings, will augment financing for the Duterte administration’s ambitious “Build, Build, Build” infrastructure program.

“However, of course, initially, you would have the cost-push effect of the higher indirect taxes,” said Medalla. /je