DOF: Inflation likely hit fresh over five-year high of 4.9% in June

Finance Undersecretary Gil Beltran. (Photo from his Facebook page)

Inflation likely climbed to a fresh over five-year high of 4.9 percent year-on-year in June due to a low base from a year ago coupled with higher prices of vegetable and “sin” products as well as education costs during the start of classes, the Department of Finance (DOF) said Tuesday.

In an economic bulletin, DOF Undersecretary and chief economist Gil S. Beltran said that consumer prices last month inched up 0.35 percent from levels in May.

“The month-on-month inflation adjustment may be due mainly to two items—2.43-percent month-on-month rise in [prices of] education[-related goods and services] during the opening of classes, and 2.27-percent rise in vegetable prices that usually accompanies incessant rains at the onset of the wet season,” Beltran explained.

June marked the start of the rainy season.

Compared to a year ago, headline inflation in June last year was a low of 2.5 percent, Beltran noted, hence the year-on-year spike.

“Food prices contributed to the year-on-year uptick mainly due to vegetables, while month-on-month inflation of fish and rice prices moderated to 0.11 percent and 0.1 percent, respectively,” Beltran said.

“The price increase from sin products continues to be double-digit year-on-year, even as the month-on-month rate plunged to 0.3 percent from 0.81 percent last May. For the June inflation rate, sin products contribute as much as 0.46 percentage points year-on-year,” Beltran added.

The latest DOF data showed that the rate of increase in prices of alcoholic beverages and tobacco jumped 20.44 percent year-on-year in June. Prices of tobacco products alone increased by a faster 27.82 percent.

Under the Tax Reform for Acceleration and Inclusion (TRAIN) Act, 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 tax rates slapped on alcoholic drinks go up every year under the Sin Tax Reform Law of 2012.

Starting July, the unitary excise tax slapped on cigarettes will further rise to P35 per pack, as mandated under the TRAIN Law.

Improved tax compliance by Mighty products, now owned by Japan Tobacco International, had also been blamed by the DOF for pushing cigarette prices higher, as correct tax payments elevated the brand’s retail prices.

As for non-food commodities, Beltran said that their average prices rose 0.33 percent month-on-month, “driven by education and petroleum products, but tempered by the decline in electricity rates.”

The government will release the June inflation figure on Thursday.

Last Monday, economic managers conceded that the inflation rate would likely breach the 2-4 percent target for 2018 as they adopted the Bangko Sentral ng Pilipinas’ forecast of 4-4.5 percent for the entire year.

As of May, inflation averaged 4.1 percent, already above the full-year target range, such that the BSP hiked the policy rate twice during the past two months by 25 basis points each to 3.5 percent in a bid to temper mounting price pressures. /jpv