March inflation hits 4.3%

Consumer prices rose by 4.3 percent in March, the fastest since August 2014 and above the government’s target range for 2018, partly due to the double-digit jump in prices of “sin” products last month, according to the Philippine Statistics Authority.

Reacting to the latest inflation report, the Bangko Sentral ng Pilipinas finally hinted at acting against the accelerating pace of price increases.

BSP Governor Nestor Espenilla Jr., in a mobile phone message to reporters, said the Monetary Board—whose seven members meet every six weeks to determine the level of domestic interest rates, and consequently help manage the inflation rate—was tasked to “carefully evaluate the appropriateness of a measured policy response.”

This response, he said, was meant to “firmly anchor” inflation expectations to the central bank’s insistence that its targets for the rate of increases in the prices of basic goods and services ” would continue to be met in 2018 and 2019.”

“There’s a pick-up in inflation that we recognize,” Espenilla said, adding that financial markets were already factoring this in their assumptions.

In the meantime, UK-based Oxford Economics said the headline inflation rate could hit seven-year high levels this year, such that the BSP would likely raise rates twice.

A report of the PSA on Thursday showed that the rate of increase in the prices of basic goods last month was faster than the 3.1 percent posted in March last year and the revised 3.8 percent in February.

As such, nationwide inflation averaged 3.8 percent in the first quarter, near the upper end of the 2-4 percent target range for the year.

Based on data reflecting 2012 prices as base, inflation in March was the highest since 2013, as data before that year were not yet available.

The PSA’s price statistics division told the Inquirer that historical data up to 1957 would be released in September.

Using the old base of 2006 prices, last month’s inflation was 4.8 percent, the highest since the 4.9 percent in both July and August 2014.

In the National Capital Region, headline inflation rose 5.2 percent year-on-year in March, up from 3.9 percent a year ago and 4.7 percent a month ago, bringing the first quarter average to 4.8 percent, PSA data showed.

The PSA report showed that among major commodity groups, prices of alcoholic beverages and tobacco rose the fastest in March, jumping 18.6 percent year-on-year.

Prices of food and nonalcoholic beverages rose 5.9 percent; restaurant and miscellaneous goods and services, up 3 percent; housing, water, electricity, gas and other fuels, up 2.9 percent; furnishing, household equipment and routine maintenance of the house, up 2.7 percent; health, up 2.4 percent, and communication, up 0.3 percent.

Earlier, the Department of Finance blamed “tax issues” for the steep climb in prices of so-called “sin” products such as cigarettes and tobacco, last month in view of the the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Act and the Sin Tax Reform Act of 2012.

Signed by President Duterte in December, Republic Act No. 10963 or the TRAIN law jacked up or slapped new excise taxes on cigarettes, oil, sugary drinks and vehicles 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.

Also, the excise taxes on alcoholic drinks increased at the start of the year as mandated under the Sin Tax Reform Law.

In an April 3 research note, Oxford Economics said that “inflationary pressures are already more evident in India and the Philippines.”

“In the Philippines, we expect inflation to accelerate to a seven-year high, due to second-round effects of the recent goods and services tax adjustments and a depreciation in the peso,” Oxford Economics said.

“Consequently, we expect the Reserve Bank of India and BSP to raise rates twice this year,” Oxford Economics said.

State planning agency National Economic and Development Authority said “the government must continue to be proactive in maintaining price stability and cushioning the impact of higher consumer prices on the poor following the uptick in inflation in March.”

“The government remains vigilant to price pressures, especially on food consumed by the poor such as rice,” Neda Undersecretary and officer-in-charge Rosemarie G. Edillon said in a statement.

Rice prices increased 3.6 percent in March, up from 2.8 percent in February, as “farm gate prices of palay have been on an upward trend since the second week of January, which in part, contributed to higher wholesale and retail prices of rice,” according to Neda.

In its Socioeconomic Report 2017 released this week, Neda said expectations of higher inflation this year posed risk to the government’s plan to slash poverty incidence rate to 14 percent by 2022.

Last month, the BSP again raised its inflation forecast for 2018 to 3.9 percent from 3.8 previously (or 4.5 percent from 4.3 percent using the old base year of 2006), citing expectations of higher global oil as well as domestic rice prices.

The BSP had also projected a faster rate of increase in prices of basic goods this year due to the impact on consumer prices of the Duterte administration’s first tax reform package.

The BSP’s decision to hold off any rate hike during the Monetary Board’s last three meetings over the past three months has been questioned by some bankers and economists, but Espenilla stressed that regulators did not react to “water under the bridge” and, instead, look to address inflation threats that were just emerging on the horizon.

The BSP believes the current inflation environment is due to “transitory” factors that will normalize by next year. It expects inflation to average “near the high-end of the target range in 2018 before decelerating to the midpoint of the range in 2019.”