ADB sees PH’s 2018 inflation hitting 6-yr high

The Asian Development Bank sees consumer prices in the country to remain elevated for the rest of the year and projects annual inflation to hit at least a six-year high of 4.3 percent.

In its Asian Development Outlook Supplement July 2018 report, which was released yesterday, the Manila-based multilateral lender raised its 2018 inflation outlook for the Philippines from 4 percent in a similar report in April.

To compare, inflation averaged 2.9 percent last year, 1.3 percent in 2016, 0.7 percent in 2015, 3.6 percent in 2014 and 2.6 percent in 2013, based on 2012 prices.

“Inflation in the Philippines reached 5.2 percent in June, driven largely by price hikes for fuel and related items and by sporadic shortages of key food items. This outcome combines with high global oil prices, peso depreciation and strong domestic demand to prompt this supplement to revise the inflation forecast for 2018,” the ADB explained.

Last month’s headline inflation hit a fresh five-year high, such that the first-half rate stood at 4.3 percent, already breaching the full-year target range of 2-4 percent.

“Higher excise taxes on fuel and some commodities as part of the Tax Reform for Acceleration and Inclusion Act, which took effect in January 2018, are contributing factors,” the ADB said.

Signed by the President last December, the TRAIN law or Republic Act No. 10963 jacked up or imposed new excise taxes on, among others, cigarettes, sugary drinks, oil products and vehicles to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of P250,000.

Due to the higher-than-expected inflation, the Bangko Sentral ng Pilipinas’ policymaking Monetary Board hiked the policy rate to 3.5 percent or by 25 basis points each in May and June.

For next year, the ADB kept its inflation forecast of 3.9 percent as “the impact of tax reform on inflation is expected to be transitory and normalize in 2019.”

“Also arguing for maintaining the inflation forecast for 2019 are the upward adjustments to monetary policy rates anticipated in line with the tightening of monetary policy globally,” the ADB added.

The BSP is seen raising interest rates again at its next policy meeting in August.

Early this month, economic managers conceded that inflation would exceed the upper end of the government target for 2018, such that they adopted the BSP’s forecast of 4-4.5 percent for the entire year.

While keeping the 2-4 percent inflation target for 2018 to 2020, the Cabinet-level Development Budget Coordination Committee (DBCC) jacked up its projected rate of increase in the prices of basic goods for this year from the earlier forecast of 2-4 percent.

For 2019-2022, the yearly inflation forecasts were maintained at 2-4 percent.