ECONOMIC managers expect fuel prices to go down as major oil-exporting countries discuss ramping up their production, but they acknowledged on Tuesday that the volatility in fuel prices—which trained public anger on the tax reform law that mandated higher fuel excise rates—was not something they had considered well.
Finance Secretary Carlos G. Dominguez III said they are hoping for the continuous reduction in fuel price, since market prices of oil have started going down, with Russia and Saudi Arabia producing more gas and fuel.
“It came from $44 per barrel, went up to $71 or $72; now it’s easing up to about $67—but we’re just seeing it going down. So hopefully that will continue, so that it will really lessen the tension on price,” he said in a press briefing for reporters covering President Duterte’s three-day visit in South Korea.
He said the North Korea-United States summit can also calm down the markets “quite a bit,” and he hopes the situation in the Middle East will be calmer than in past weeks, so fuel prices “will not be too volatile.”
Dominguez acknowledged that the increase in fuel prices was “unexpected.”
What they had planned for was the increase in the price of “sin” products, such as tobacco and sugary drinks under the Tax Reform for Acceleration and Inclusion law. This was a deliberate policy. Economic managers who were defending the TRAIN bill earlier had told lawmakers that their projections did not show any sharp inflationary impact from the TRAIN-mandated higher fuel excise tax.
“Unfortunately, we could not foresee that there was going to be tension in the Middle East, and that drove the price of fuel up,” Dominguez said. “So you know… part of the inflation is caused by TRAIN, but it is caused because we wanted the price of tobacco and sugary drinks to go up. It’s something that we planned, and the legislature agreed to it—so that is the cause.”
Inflation drivers
In a joint statement of the Department of Budget and Management, National Economic and Development Authority (Neda) and Department of Finance read by Budget Secretary Benjamin E. Diokno in a briefing at the DBM on Tuesday, the three agencies said they are “closely monitoring and taking steps to address the difficulties experienced by Filipino families today arising from higher prices.”
The statement read: “Staying the course will not always be easy, but we owe it to our people, our children and future generations. We know that we are going through a challenging period.”
The statement was issued amid calls to suspend the TRAIN law, which some legislators and worker sectors blamed for the rising costs of goods.
They noted that personal transport prices, which are largely driven by rising world crude oil prices, was one of the factors that contributed to May’s inflation rate of 4.6 percent. That rate is at the lower end of the government’s projection of inflation ranging between 4.6 and 4.9 percent.
The increase in the international oil prices beyond the programmed level of $60 per barrel contributed 0.5 percentage points to the overall inflation rate.
“This means that, for every additional peso due to inflation, one pays 11 centavos more,” the briefing document read.
Prices of rice, corn, fish and tobacco were the other factors that contributed to the inflation rate.
According to the joint statement, increasing oil production by other countries will bring down the cost of the country’s oil imports and prices at the pump.
Mitigating measures
The Department of Energy (DOE) has forged agreements with oil companies to provide discounts to public-utility vehicles, and the Department of Transportation is finalizing guidelines for fuel subsidies under the TRAIN.
The DOE is also exploring the option of importing oil from non-members of Organization of Petroleum Exporting Countries.
Rice tariffication
The agencies said in their statement that they all agreed that one of the best ways to address high food prices is for Congress to ensure urgent passage of Rice Tariffication Act as the Bangko Sentral ng Pilipinas estimates that this will reduce this year’s inflation by around 0.4 percentage points if implemented in the third quarter.
They also see this policy shift driving down rice prices by up to P7 per kilogram for the
Filipino family.
To address the effects of higher prices on the poorest families, the government also continues the disbursement of the TRAIN’s unconditional-cash transfers given on top of the Pantawid Pamilyang Pilipino Program cash grants.
“Suspending TRAIN and adopting other band-aid solutions will only have a minimal and short-term impact on inflation and will stifle our growth, further delaying our nation’s progress toward becoming an upper-middle-income country by 2019, such that around 6 million Filipinos would be lifted out of poverty by 2022,” the statement read.
The DBM, DOF and Neda said the TRAIN is vital for the “Build, Build, Build” program of the Duterte administration to fill in the country’s infrastructure gap.
The government also seeks to create more than 1 million jobs for fellow Filipinos through 2022, while reducing logistics costs for businesses.
With Rea Cu