Higher sin taxes expected to fuel inflation

The Department of Finance (DOF) expects higher costs of the so-called “sin” products will continue to fuel the rate of increase in consumer prices in the coming months.

Based on the latest DOF Economic Bulletin, the fiscal authorities said that inflationary pressure in the near-term will mainly come from higher prices of cigarettes and alcoholic drinks along with sugar sweetened beverages (SSB).

Inflation rate in March inched up to 4.3 percent from 3.8 percent the previous month, higher than the DOF’s internal forecast of 4.1 percent.

In the first quarter of the year, inflation rate averaged at 3.9 percent, already at the higher end of the government’s target range of 3.0 percent o 4.0 percent.

“Appropriate adjustments in prices of sin products, tobacco specifically, will continue to fuel inflationary momentum in the near term. However, the government is precisely discouraging the consumption of these products through higher prices, among others,” the DOF said.

In March, inflationary pressure came largely from elevated food prices, including rice, fish, and vegetables due to absence of National Food Authority (NFA) rice, rough seas limiting fish supply, and bad weather affecting vegetables, respectively.

“Continuing higher prices of nonalcoholic beverages due to TRAIN [tax reform for acceleration and inclusion] and sin products due to sin tax adjustment likewise pushed up inflation pace,” the department added.

For non-food items, fuels and restaurants contributed to the uptick as world petroleum prices rose and SSB taxes continued to bite, respectively.

Following the inflation uptick last month, Socioeconomic Planning Undersecretary Rosemarie G. Edillon said the government must continue to be proactive in maintaining price stability and cushioning the impact of higher consumer prices on the poor.

The higher inflation rate was driven by the continuous acceleration of key commodity items since the start of the year: alcoholic beverage and tobacco (18.6 percent), food and non-alcoholic beverages (5.9 percent), and housing, water, electricity, gas, and other fuels (2.9 percent).

Edillon explained that proactive measures will be vital in managing inflation and mitigating its impact especially on the poor.

“The government remains vigilant to price pressures, especially on food consumed by the poor such as rice,” Edillon said in a statement.

Prices of rice rose by 3.6 percent in March, from 2.8 percent in February. Farm gate prices of palay have been on an upward trend since the second week of January, which in part, contributed to higher wholesale and retail prices of rice. (CSL)