Consumer spending growth to slow but remain strong — ANZ

CONSUMER SPENDING could ease in response to rising commodity prices due to tax reform, an analyst at ANZ Research said, even as the Finance department maintains that the higher taxes should have a “minimal” impact on inflation.

“Domestic demand is strong and is likely to remain so. However, the risk of some moderation in consumption growth remains,” ANZ Research economist Eugenia Fabon Victorino said in a report published on Wednesday.

Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act (TRAIN) that took effect last month, introduced additional taxes on fuel, cars, coal, sugar-sweetened drinks and a host of other items.

Ms. Victorino said higher and new levies could dampen growth of domestic consumption, despite bigger disposable incomes from a parallel cut in personal income tax rates.

“While take-home pay is higher for taxpayers, non-tax payers are facing higher prices. In the past, for every one percent increase in headline prices there was a corresponding decrease in private consumption by 0.3%,” Ms. Victorino said.

Household consumption accounts for about 70% of national output. The government hopes to boost gross domestic product (GDP) growth to 7-8% this year from 6.7% last year, 2016’s 6.9% and a 6.2% average in 2010-2015, partly on the back of infrastructure spending that will rise to P1.84 trillion, equivalent to 7.3% of GDP, in 2022, when President Rodrigo R. Duterte ends his six-year term, from a planned P1.098 trillion this year or 6.3%.

TRAIN is widely believed to have been responsible for the auto sales growth slowdown to four percent last month from a 27% increase a year ago.

Government officials and economists have also pointed to TRAIN as a key driver of January’s price spikes that fueled annual inflation to a three-year-high of four percent that touched the ceiling of the central bank’s 2-4% target range for the entire 2018.

January’s faster- than- expected inflation, coupled with expectation of secondround effects like hikes in public transport fares and minimum wage, has prompted the Bangko Sentral ng Pilipinas to raise its 2018 inflation forecast to 4.3% from 3.4% previously.