Filipinos should brace for higher commodity prices in the coming months, but local economists said it’s not because of the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
Local economists expect inflation—the rate of increase in commodity prices—to breach the 4-percent high-end target of the Bangko Sentral ng Pilipinas in the coming months.
Ateneo Center for Economic Research and Development Director Alvin P. Ang said inflation could be higher than 4.2 percent in February and peak to around 4.5 percent in May.
“It’s not TRAIN, but mostly the lack of a good communication plan. Full impact [of TRAIN] may be felt in May,” Ang said.
University of Asia and the Pacific (UA&P) Senior Economist Victor A. Abola said oil prices is one factor that has pushed up inflation in recent months. Abola said the United States Department of Energy estimated that international oil prices have risen by 15 percent on average, which is significantly higher than the initial forecast of 5 percent.
UA&P School of Economics Dean Cid Terosa said factors that add to higher prices include the weakening peso and the current problem with the rice supply. The National Food Authority recently reported that it only has 1.7 days’ worth of rice stocks in its warehouses. Terosa said this is a bigger cause of inflation than the TRAIN.
“Rice supply definitely [has a bigger impact on inflation than TRAIN] since it is consumed daily without fail. The accumulated effect of the TRAIN law, however, can have an almost similar effect,” he said.
The National Economic and Development Authority (Neda) has already admitted that the TRAIN will have a 0.7-percent impact on inflation. This, however, can be abused by certain businessmen.
“It is also possible that certain merchants have taken advantage of the situation by raising the prices of their goods prematurely. It is so easy to point a finger at TRAIN,” Socioeconomic Planning Secretary Ernesto M. Pernia said.
Terosa agreed and said the TRAIN law raised transportation cost and trade margins. This cost is passed on to consumers by businesses, which is a natural reaction to protect their bottom lines.
The Capital Markets Development Initiative of the First Metro Investment Corp. and UA&P said in its latest Market Call report that price markups will likely increase in the coming months.
This will be due to higher prices of fuel, automobiles, sweetened beverages, among others, due to higher excise taxes.
“It prompts many retailers to explore possibilities to profit from the situation,” Terosa added.
Earlier, Neda Undersecretary for Policy and Planning Rosemarie G. Edillon also attributed the increase in the prices of food commodities, such as corn and meat, to typhoons that hit the country in December last year.
In order to address these price increases, Edillon said there is a need to encourage more investments or for existing firms to expand production.
“For these, the second round of tax reform, or TRAIN 2, is critical. This should be accompanied by the passage of the ease-of-doing-business bill,” Edillon said.
Earlier, the chairman of the Senate Economic Affairs Committee said implementation of the first package of the Duterte administration’s tax-reform measure should not be blamed for rising prices.
“As of this point, TRAIN is not the reason for the rise in prices,” Sen. Sherwin T. Gatchalian said. “It is a fluctuation on the global oil prices, as well as the depreciation of the peso.”
Saying “these are the two main causes,” Gatchalian noted recent fluctuations on oil prices. “Definitely, these are the ones affecting inflation right now. We will see the full effect of TRAIN in terms of inflation come May,” the senator said, adding: “All the way until August, this is really the timetable wherein we will feel the effects of tax reform; but, right now, not yet.”
But he confirmed he will convene another committee hearing before then to review, among others, the mitigating measures in the tax-reform law.
“The mitigating measures are there; for example, the cash-transfer subsidy adjusted to P200 this year, and we urged the Department of Finance and Neda to really implement it. The money is there, [amounting to] P24 billion,” he added.
In January, the Philippine Statistics Authority reported the increase in commodity prices reached 4 percent, which is the high end of the BSP’s target for the year.
The uptrend was primarily due to the higher annual increment in the heavily weighted food and nonalcoholic beverages index as it accelerated by 4.5 percent from previous month’s growth of 3.5 percent.
Moreover, the index for alcoholic beverages and tobacco registered double-digit annual mark-up at 12.3 percent in January 2018 from 6.4 percent in December 2017.
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