TRAIN to induce cost-push inflation
Inflation could still go up with higher consumption taxes under the new tax law, a Cebuano economist warned, saying that cost-push inflation is hard to control.
Fernando Fajardo, economics professor at the University of San Carlos, said the impact of the newly implemented Tax Reform for Acceleration and Inclusion (TRAIN) Act on consumer prices is called cost-push inflation.
"This is called cost-push inflation which is hard to control or avoid. Consumers have no recourse," the economist told The FREEMAN yesterday.
"If your income is not increased corresponding to the increase in prices, they will now have less in life than before and have to live with it," he said.
Fajardo said TRAIN's increased excise tax directly adds up to the prices of the products being taxed such as softdrinks and fuel.
It also indirectly affects transport costs which will become expensive due to increase in fuel prices.
"They may however opt to buy less or nothing of the products affected. For some products like soda, we can live without it. By not buying soda, one can in fact save the money previously spent on it. But other things can't be avoided like transport in going to school or work," Fajardo explained.
The economist believes the "government can't do much with cost-push inflation."
Fajardo explained if the Bangko Sentral ng Pilipinas will move to tighten money to raise interest rates to reduce inflation, the more prices will rise because the cost of doing business will also rise with rising interest rates.
In an earlier statement, BSP Governor Nestor Espenilla Jr. noted 4 percent inflation in January, highest in three years, continues to be consistent with BSP’s view of a manageable inflation environment over the policy horizon, with the average inflation expected to settle around the high-end of the government’s 2-4 percent target range for the year.
"Nevertheless, the BSP will remain watchful of evolving price trends and potential risks to the inflation outlook and will continue to assess its monetary policy stance in support of its primary mandate of delivering price stability conducive to a balanced and sustainable economic growth," Espenilla said.
The uptick in headline inflation for January was traced mainly to higher prices of food and non-alcoholic beverages, alcoholic beverages and tobacco items, and domestic petroleum products.
Food inflation went up as most food commodities, particularly corn, meat, and milk, cheese, and eggs, posted higher prices during the month.
Meanwhile, weather-related production disruptions pushed up prices of rice, fish, and vegetables in many regions.
Similarly, non-alcoholic beverages and alcoholic beverages and tobacco inflation rose as a result of the implementation of the TRAIN law.
At the same time, transport inflation also increased due to adjustments in gasoline and diesel prices, largely influenced by higher international prices of crude oil and the excise tax on petroleum as prescribed by the TRAIN Law.