Faster price increases of “sin” products last month likely pushed inflation to a three-year high of 4.1 percent, exceeding the higher end of the government’s target range, the Department of Finance said Wednesday.
“Sin products are significantly driving the inflationary pressure,” Finance Undersecretary Gil S. Beltran said in an economic bulletin, referring to cigarettes and alcoholic drinks.
“Of the 4.1-percent forecast inflation rate for March, sin products account for as much as 0.5 percentage point, much higher than their contribution of only 0.16 percentage point in the same month last year,” Beltran explained.
The government will release the March inflation data on Thursday.
Sin products
“The year-on-year change is dominated by sin products which rose by 22.45 percent, and food and non-alcoholic beverages which rose by 5.25 percent. Sin products and non-alcoholic beverages were affected by temporary tax issues, while fish appears to be still affected by rough seas, and vegetables by unfavorable weather,” said Beltran, who is also the DOF’s chief economist.
The “tax issues” that Beltran was referring to was the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Act alongside the Sin Tax Reform Act of 2012.
Signed by President Duterte in December, Republic Act No. 10963 or the TRAIN Law since Jan. 1 this year jacked up or slapped new excise taxes on cigarettes, oil, 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.
Under the TRAIN Law, the unitary excise tax slapped on cigarettes rose to P32.50 per pack effective Jan. 1 from P30 a pack last year.
Further increases in July
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.
Also, the excise taxes slapped on alcoholic drinks increased at the start of the year as mandated under the Sin Tax Reform Law.
The DOF had also blamed improved tax compliance by Mighty products, now owned by Japan Tobacco International, to have been pushing cigarette prices higher.
New CPI base
Headline inflation at 4.1 percent year-on-year in March would be the fastest since the 4.2 percent posted both in July and August 2014, based on the new consumer price index (CPI) base of 2012 prices, government data showed.
Had the old 2006 base been used in computing the rate of increase in prices of basic goods, inflation would have jumped 5 percent last month, Beltran said, which would be the highest since October 2011’s 5.2 percent.
As of end-February, inflation averaged 3.7 percent.
Last month, the Bangko Sentral ng Pilipinas raised its headline inflation forecast for 2018 to 3.9 percent from 3.8 percent previously, citing expectations of higher global oil as well as rice prices.
The BSP had also projected a faster inflation rate this year due to the impact on consumer prices of the Duterte administration’s first tax reform package.