Inflation likely up 4.1% in February, says DOF

The higher excise tax rates slapped on “sin” products such as cigarettes at the start of the year pushed inflation faster in February to possibly hit a fresh over three-year high of 4.1 percent, the Department of Finance said Monday.

“Food and non-food commodities alike see their respective rate of price increase relatively unchanged while those of sin products may have likely accelerated. The latter may be explained partly by price increase due to sin tax hikes and partly by the appropriate price adjustments of Mighty Corp. following its paying the right amount of taxes,” DOF Undersecretary and chief economist Gil S. Beltran said in an economic bulletin.

A headline inflation of 4.1 percent year-on-year will be the fastest since the 4.3 percent posted in October 2014.

Under Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Act, the unitary excise tax slapped on cigarettes rose to P32.50 per pack effective Jan. 1 from P30 a pack 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.

Signed by President Duterte in December, the TRAIN Law starting Jan. 1 this year 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.

Finance Undersecretary Karl Kendrick T. Chua earlier said that the 4-percent average rate of increase in prices of basic goods last January was due to “better compliance in tobacco tax.”

“Tobacco inflation was 17.4 percent in January when the expected increase is only 8 percent due to the scheduled tobacco tax increase. Since profiteering is unlikely, the remaining reason is that Mighty under Japan Tobacco is now paying the right tax, and thus is charging higher prices for cigarettes,” Chua had explained.

“This is corroborated by Bureau of Internal Revenue data which showed monthly collection up by around P1.5-2 billion. In fact, if Mighty continued to evade tax and therefore cigarette prices remain low, overall inflation would have gone down to around 3.75 percent,” according to Chua.

For Beltran, “while the 4.1-percent forecast may seem to have breached the higher end of the inflation target range, it is largely on account of the price increase of sin products.”

“These are non-essential and are even harmful, products which we want the general public to steer clear away from on health reasons. Of the 4.1-percent forecast, 0.4 percentage point is accounted for by sin products,” according to Beltran.

The Bangko Sentral ng Pilipinas expects headline inflation to average 4.3 percent this year and breach the 2-4 percent target range due to the impact on consumer prices of the first tax reform package as well as expected global oil price hikes.