Inflation hits more than 5-year high

Inflation rose to 4.5 percent year-on-year in April, the fastest pace in more than five years, mostly on the back of a jump in prices of “sin” products, the government reported Friday.

As such, the headline inflation rate based on 2012 prices averaged 4.1 percent in the first four months, breaching the government’s 2-4 percent target range.

In a statement, the country’s chief economist nonetheless said that the surge was temporary and seen to normalize toward the end of the year.

“The current surge in inflation is partly an initial reaction to the implementation of TRAIN and is expected to be short-lived and should taper off over the coming months. The more important sources, however, are the slew of world oil price increases and the depreciation of the peso,” Socioeconomic Planning Secretary Ernesto Pernia said, referring to the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

Signed by President Duterte in December last year, Republic Act No. 10963 or the TRAIN Law since Jan. 1 this year jacked up or slapped new excise taxes on cigarettes, sugary drinks, oil products 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.

The peso also slid to 11-year lows at the start of the year due to market concerns on the current-account deficit, seen to further widen due to robust imports of capital goods.

Last month, the Cabinet-level Development Budget Coordination Committee raised the foreign exchange rate assumption for the period 2018 to 2022 to 50-53:$1, from 49-52 previously, on expectations of a weaker peso in the medium term due to the huge fiscal stimulus in the United States.

“While the major factors contributing to the recent surge in inflation are temporary, we need to remain vigilant against emerging price pressures and to implement mitigating measures immediately,” said Pernia, who also heads the state planning agency National Economic and Development Authority.

In a report, the Philippine Statistics Authority attributed the faster increase in prices of basic goods to the following commodity groups: Alcoholic beverages and tobacco (up 20 percent); clothing and footwear (up 2.2 percent); housing, water, electricity, gas and other fuels (up 3 percent); furnishing, household equipment and routine maintenance of the house (up 2.8 percent); health (up 2.8 percent); transport (up 4.9 percent); recreation and culture (up 1.5 percent) and restaurant and miscellaneous goods and services (up 3.4 percent).

Under the TRAIN Law, the unitary excise tax slapped on cigarettes already rose to P32.50 a pack effective Jan. 1 from P30 last year.