January inflation hits 3-year high of 4%

As average consumer prices increased due to the new or higher excise taxes slapped on a number of products under the Tax Reform for Acceleration and Inclusion (TRAIN) law, inflation rose to a 39-month high of 4 percent in January, the government reported Tuesday.

The head of the Duterte administration’s economic team, however, was surprised that the headline inflation rate already hit the top end of the government’s 2-4 percent target range for 2018 and suspected that unscrupulous traders might have raised prices unreasonably.

“I have to look at the figures closely but I find it hard to believe that the implementation of the TRAIN Law, which went into effect on Jan. 1, 2018, had any significant effect on prices, unless, of course, merchants took advantage of the law and raised prices on old inventories,” Finance Secretary Carlos Dominguez III said.

Signed by President Duterte in December, the TRAIN law jacked up or slapped new excise taxes on 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.

Philippine Statistics Authority data showed that the rate of increase in prices of basic goods last month was the fastest since the 4.3 percent posted in October 2014.

The country’s chief economist said the government must ensure mitigation measures were in place to cushion the transitory inflationary impact of the TRAIN Law. “Equally important are vigilant price monitoring and prompt action to curb profiteering,” Socioeconomic Planning Secretary Ernesto M. Pernia said.

Pernia, who heads the state planning agency National Economic and Development Authority, explained that the push in inflation was partly due to the TRAIN Law, considering particularly the excise on fuel and additional “sin” taxes.

But the Neda chief nonetheless said that the effects of the TRAIN Law, which overhauled the country’s tax system for the first time in two decades, would be minimal and temporary.

Neda noted that prices of food and non-alcoholic beverages rose 4.5 percent year-on-year on higher prices of corn and fruits partly due to the lingering effects of successive typhoons that occurred in the last quarter of 2017.

Prices of alcoholic beverages and tobacco, meanwhile, jumped 12.3 percent last month from 6.4 percent in December, according to Neda.

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

The government must ensure faster provision of financial assistance through the unconditional cash transfer program to help the poorest 50 percent of Filipino households cope with the transitory impact of the TRAIN Law on prices, Pernia said.