Rice imports PHL’s strongest bet for taming inflation — BSP
THE central bank expects the proposed rice tariffication law to help bring inflation back to within its preferred range, while projecting the inflation-dampening impact of suspending fuel tax hikes at only fraction of a percentage point.
The Bangko Sentral ng Pilipinas (BSP) said on Wednesday at a Senate hearing that the suspension of the P2 per liter fuel excise tax scheduled for 2019 will shave an estimated 0.2 percentage point off the full-year inflation rate, a reduction that could still be wiped out should global crude prices rise further.
By way of contrast, more liberal rice imports being contemplated under the proposed rice tariffication law have the potential to bring inflation back to the bank’s 2-4% target range, after the indicator hit a nineyear high of 6.7% in September, bringing the year to date average to 5%.
“With rice tariffication we see inflation being reduced by about 0.7 percentage point for 2019. It should bring us squarely within the inflation target band,” said BSP Assistant Governor Francisco G. Dakila, Jr.
Inflation has been driven by, among others things, higher global fuel prices and disruptions to the rice supply, which economic managers hope to counter by more freely importing cheap foreign rice, in exchange for a tariff that will help fund programs to make domestic farmers more competitive. But they have tended to minimize the inflation impact of tax hikes to insulate the government’s revenue-generating capability from political pressure.
According to the BSP’s estimates, “if the fuel excise tax is suspended over the whole of 2019, we see inflation coming down by 0.2 percentage point,” Mr. Dakila said.
Mr. Dakila said such a reduction would result in inflation falling to 4.1% instead of the forecast 4.3% for 2019.
However, assuming the Dubai crude benchmark continues to average around $80 per barrel (/bbl), the BSP said that the inflation rate will fall by only 0.1 percentage point, with the impact diminishing further if the suspension is lifted sometime that year
“If the suspension is for a portion of the year, the impact on inflation would correspondingly be smaller,” he said.
In a bid to temper inflation expectations, economic managers recommended to Malacañang the suspension of a scheduled P2 per liter fuel excise tax in 2019 after oil futures signalled crude prices of above $80/bbl in the last three months of the year. Malacañang committed to suspend the tax hike, but has yet to come out with an official order implementing the measure.
According to the Tax Reform for Acceleration and Inclusion (TRAIN) law, the succeeding tax increases will be halted when Dubai crude oil averages $80/bbl or above in the preceding three months of its implementation. The law raised fuel excise taxes by P2.5 per liter this year, and is scheduled to increase it by P2 per liter in 2019 and P1.5 per liter in 2020.
The Department of Finance (DoF) is currently reviewing the implementing rules and regulations of the suspension of the tax hikes, as well as the conditions for reinstating them. The DoF said the trigger for resuming the tax hikes is when the Dubai crude benchmark averages below $80/ bbl in any three-month period.
Mr. Dakila however said Dubai crude could fall next year based on signals from the futures market, with some contracts for future delivery falling below the $80 trigger level.
Finance Undersecretary Karl Kendrick T. Chua said during the same hearing that the government will suspend the 2019 fuel tax hike for “three months at most,” given the expected decline in fuel prices.
Senator Sherwin T. Gatchalian, who chaired the hearing, sought a longer suspension period of “six months” to be able to give the public more relief as world oil prices are expected to fall further towards the latter part of the year.
Mr. Gatchalian also said that since the government wanted to suspend the fuel tax hike scheduled for 2019 before the three-month trigger period provided for by law, corresponding adjustments may require legislative action. —