BSP keeps watch as inflation spikes By Mark T. Amoguis Researcher Melissa Luz T. Lopez with Senior Reporter

THE OVERALL INCREASE in prices of widely used goods and services surged in January by its fastest clip in more than three years, topping market consensus on the back of the impact of higher taxes.

The Bangko Sentral ng Pilipinas (BSP) said that while the actual pace was the ceiling of its estimate range for the month, it would “closely” monitor the situation and was “ready to take timely action” should policy intervention be needed to bring inflation to heel.

Preliminary Philippine Statistics Authority (PSA) data showed inflation picking up to four percent, faster than December’s 3.3% and the 2.7% recorded in January 2017.

January’s pace was faster than the 3.5% median in a Business World poll of 14 economists and hit the top end of BSP’s 3.5-4% range and the Finance department’s (DoF) 3.3% estimate for that month.

It was also the fastest reading since October 2014’s 4.3%.

Core inflation, which includes volatile food and energy items, was also faster during the period at 3.9% compared to 3% in December and 2.5% in January last year.

BSP expects full-year inflation to average 3.4% this year, higher than the 3.2% finish in 2017 but still within an official 2-4% target range.

“The faster overall price increase of goods can be attributed mainly to the 4.5% increase in the food and non-alcoholic beverages segment,” the National Economic and Development Authority (NEDA) said in a statement.

“The push in inflation is partly due to TRAIN, considering particularly the excise on fuel and additional ‘sin’ taxes,” NEDA quoted its director-general, Socioeconomic Planning Secretary Ernesto M. Pernia, as saying, referring to Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act enacted in December and which took effect last month.

At the same time, Mr. Pernia said effects of tax reform would be “minimal and temporary.”

In a separate statement, the DoF said “[t]he rise in inflation in January may be partly traced to the excessive price adjustment for the ‘sin’ tax, the sugarsweetened beverages ( SSB) tax in the TRAIN law in the case of non-alcoholic beverages, and weather disturbances in the case of vegetables.”

BSP Governor Nestor A. Espenilla, Jr. told reporters that January’s inflation spike remained within expectation, even as it hit the ceiling of both its estimate for that month and a 2-4% full-year target for 2018.

“The higher January 2018 reading was expected by the BSP although it is at the top end of our forecast for the month,” Mr. Espenilla said in a WhatsApp message.

“We think these are temporary drivers of inflation and would eventually stabilize,” he said of TRAIN’s impact on prices of widely used consumer items.

RA 10963 imposed an additional P2.50 per liter excise tax on diesel and P3/ liter on kerosene at a time world crude prices have been hitting their highest levels in nearly three years. The new law also either hiked or imposed additional taxes on cars, coal, sugarsweetened drinks and a host of other items.

The central bank, Mr. Espenilla said, “will be closely monitoring the situation and stand ready to take timely action based on our evaluation of all relevant data.”

The DoF said in an economic bulletin that “Of the four percent inflation, 2.1 percentage points was accounted for by ‘sin’ products and sugar-sweetened beverages”.

The food and non-alcoholic beverages index, which account for nearly 38.98% of the consumer price index (CPI), rose 4.5%, faster than the 3.5% logged in December 2017 and 3.4% in the same period last year.

Meanwhile, alcoholic beverages and tobacco more than doubled year-on-year with the index growing 12.3% last month compared to 5.6% in January 2017 and 6.4% in December 2017. Broken down, inflation for tobacco increased 17.4% from 6.9% a year prior while that of alcoholic beverages went up 4.8% from 3.7%.

For food alone, the index went up 4.5% in January compared to 3.7% a month earlier and 3.6% in January 2017.

Non-food inflation, meanwhile, was 3.1%, faster than two percent a year ago.

Other sub-indices that contributed to inflation were: furnishing, household equipment and routine maintenance of the house (two percent); health ( 2.6%); transport ( 3.2%); and restaurant and miscellaneous goods and services (3.7%).

“Although electricity prices last month were noted to be lower, the momentum of the first tranche of the tax reform program is undeniable,” said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (UnionBank).