IMF cautions gov’t on inflation spike

The International Monetary Fund has further raised its inflation forecasts for the Philippines in the next two years and has cautioned monetary authorities to carefully watch the recent faster rate of increase in prices of basic goods.

In its Regional Economic Outlook for Asia-Pacific report titled “Good Times, Uncertain Times: A Time to Prepare” released on Wednesday, the IMF projected headline inflation of 4.2 percent in 2018 and 3.8 percent in 2019 for the Philippines.

In its October 2017 World Economic Outlook report, the IMF forecast only a 3-percent inflation rate for both 2018 and 2019 even as the upward adjustment also reflected the change in the consumer price index’s base year to 2012 prices from 2006 previously.

“Inflation should remain within the target band of 2-4 percent, but the authorities will need to watch carefully for building inflation pressure as well as rapid credit growth,” the IMF said.

Last week, the government reported that inflation rose 4.5 percent year-on-year in April, the highest in more than five years, mainly on the back of a jump in prices of “sin” products such as cigarettes and alcoholic drinks.

The headline inflation rate averaged 4.1 percent during the first four months, breaching the government’s target range.

The IMF noted that at the start of the year, inflation picked up “owing to the temporary effects of tax reform implementation and higher energy prices,” referring to the Tax Reform for Acceleration and Inclusion (TRAIN) Act, which 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 IMF nonetheless kept its gross domestic product growth forecasts of 6.7 percent for 2018 and 6.8 percent for 2019, although both were below the government’s target of 7-8 percent expansion yearly starting this year until 2022.