INFLATION accelerated to an over three-year high in February, the government reported on Tuesday, with higher food, beverage and tobacco prices said to have been the primary drivers.
Using 2012 as the new base year, the Philippine Statistics Authority (PSA) said that consumer price growth rose to 3.9 percent last month, up from January’s 3.4 percent and the 3.1 percent recorded a year earlier.
It was also the highest since September 2014 when inflation clocked in at 3.9 percent.
Based on the previous series that used 2006 prices, meanwhile, inflation surged to 4.5 percent from 4.0 percent a month earlier, higher than the 4.1 percent consensus in a Manila Times poll of economists.
The result also topped the Finance department’s 4.1-percent forecast but fell within the Bangko Sentral ng Pilipinas’ (BSP) estimate of 4.0-4.8 percent.
The release of two inflation data sets beginning this month will continue until July when the PSA will only release rebased data.
For the first two months of the year, inflation in 2012 prices averaged 3.7 percent, within the official 2.0-4.0 percent target range.
The February rise, the National Economic and Development Authority (NEDA) said, was due to faster increases in prices of food and non-alcoholic beverages (4.8 percent); transport (5.8 percent); alcoholic beverages and tobacco (16.9 percent); furnishing, household equipment and routine house maintenance (2.5 percent); restaurant and miscellaneous goods and services (2.5 percent); and clothing and footwear (2 percent).
With a monetary policy meeting scheduled later this month, central bank Governor Nestor Espenilla moved to douse expectations of an interest rate hike, saying that inflation, while expected to top 4.0 percent this year, will return to the target range in 2019.
“The BSP expects inflation, using the 2006-based CPI (consumer price index) series, to average above 4.0 percent in 2018, thus exceeding the high end of the national government’s target range…,” he told reporters.
“However, average inflation is expected to return within target range in 2019, settling slightly above the midpoint of the target range,” Espenilla added.
“The higher inflation in 2018 reflects the projected higher prices of domestic petroleum products, electricity rates, sugar-sweetened beverages, and tobacco, which are seen to be temporary.”
This short-term impact, which is due to the implementation of higher excise taxes under the recently-implemented Tax Reform for Acceleration and Inclusion (Train) law, was also cited by Socioeconomic Planning Secretary Ernesto Pernia who said the government should be ready to mitigate upside risks.
“The transitory impact of the Train law and the continued depreciation of the Philippine peso will mainly influence price movements in the coming months and we must ensure that mitigating measures should be in place,” Pernia said in a statement.
Malacañang, for its part, downplayed the impact of higher taxes and said that February’s inflation spike was due to higher crude oil prices and tobacco product prices having gone up as manufacturers started paying proper taxes.
The Train law, Palace spokesman Harry Roque, Jr. said in a briefing, accounted for just 0.7 percent of the inflation rate.
“The Finance department answered that it is impossible that the inflation came from the Train [law]. First of all, the price of oil us really high and is dictated by market forces. The funds being collected for tobacco products are also very high,” Roque said.
“[The high prices of tobacco] is because of the settling and the payment of right taxes of former companies which cheated on their tax payments,” he added.
Pernia said government must pay closer attention to the poor, particularly the expansion of the Pantawid Pamilyang Pilipino Program and the fast-tracked distribution of unconditional cash transfers.
He also reiterated a call to replace quantitative restrictions on rice with tariffs, which is expected to lower prices of the grain and raise revenues for agricultural programs promoting crop diversification and disaster resiliency.
“These measures will ensure better stability in the prices of food items and maintain or raise the purchasing power of the bottom 30 percent of households,” Pernia said.
“We must [also]enforce fair consumer pricing among businesses. In January, there were anecdotal reports that some of them are taking advantage of the Train law by prematurely increasing their selling prices despite no additional input costs to their production and services brought about by the law,” he added.
The BSP’s Espenilla also noted that mitigating measures such as the cash transfers and transport subsidies would prevent second-round effects from developing.
Monetary authorities will “remain watchful against signs of higher inflation becoming more broad-based and persistent to ensure that inflation expectations remain consistent with the target,” he said, but noted that “monetary policy operates with a long lag.”
“Whatever monetary policy action we do now, will more likely be felt in 2019 and beyond rather than 2018,” Espenilla added.
Australia’s ANZ Research said the BSP’s statements suggested a reluctance to tighten.
“We are accordingly, revisiting our call for a 25bps (basis points) rate hike in March,” ANZ economist Shashank Mendiratta said.
WITH RALPH EDWIN U. VILLANUEVA