High domestic demand pushes inflation up

Consumer prices have been rising at a faster pace because households have more money to spend, thanks mainly to the tax reform law, according to the Department of Finance.

In a statement, Finance Secretary Carlos G. Dominguez III yesterday said a significant portion of the higher inflation rate observed in April could be attributed to higher domestic demand.

Dominguez said households now had about P32 billion more to spend monthly as a result of the personal income tax cuts under the Tax Reform for Acceleration and Inclusion Act (Train law).

He said there were also the unconditional cash transfer program, the free tuition in state universities and colleges (SUCs), and the additional wages for government workers.

Dominguez said tax cuts for personal income freed up P12 billion, which meant more disposable income for households, whole free tuition for the coming academic year would give the beneficiaries’ households an additional P3.5 billion and cash transfers P2.5 billion more.

He said the increase in wages paid through the government’s spending program amounted to about P15 billion a month.

“So you have around P32 billion being spent by people, and that will tend to drive up prices,” Dominguez said. “That is (consumer) demand, (which) is part of the reason (for the higher inflation).”

In April, the Philippine Statistics Authority said the rise in prices nationwide went faster at 4.5 percent. This outpaced the 4.3 percent recorded in March and the 3.2 percent in April 2017.

“It’s very strange that while inflation increased, hunger and self-rated poverty decreased,” Dominguez said. “These are not government figures, these are figures from the private sector.”

He was referring to the Social Weather Stations’ first-quarter report, which showed that the number of self-rated poor families dropped to 29 percent in March 2018 from 32 percent in December 2017.

“So I guess to some extent, the programs of President Duterte (‘Build, Build, Build’ and tax reform) are working,” the finance chief said. “The average Filipino has more money in his pocket and, in a sense, is better off.”

“The Train law has been unfairly blamed for the elevated inflation rate we are currently experiencing,” he added.

DOF estimates show that two-thirds of last April’s 4.5-percent inflation rate was “typical of a rapidly expanding economy” and that the remaining one-third was due mainly to the sharp increases in key imported commodities specifically oil, the realignment of currency exchange rates and a robust increase in domestic demand.