DOF expects February inflation to exceed projections

MANILA, Philippines – Higher prices of sin products such as tobacco and alcohol are expected to jack up the inflation rate in February to a new 3-year high of 4.1%, said the Department of Finance (DOF).

Ahead of the announcement of the official February 2018 inflation rate, the DOF on Monday, March 5, released an economic bulletin, saying that the inflation rate – or the movement of prices of basic goods and services – likely edged higher to 4.1% in February, from 3.95% last January.

It would be much faster than the 3.3% inflation rate recorded in February 2017, and beyond the government’s target of between 2% and 4%. (READ: Inflation seen to continue hitting poor Filipinos hard)

“While the 4.1% forecast may seem to have breached the higher end of the inflation target range, it is largely on account of the price increase of sin products,” said the DOF.

Among others, the newly-implemented Tax Reform for Acceleration and Inclusion (TRAIN) law resulted in more expensive tobacco.

Since January 1 this year, a higher excise tax of P32.50 per pack has been imposed on cigarettes, from P30 per pack last year. Starting July 1, the excise tax on cigarettes will increase further to P35 per pack.

“These are non-essential and are even harmful products, which we want the general public to steer clear away from on health reasons,” the finance department said.

Of the 4.1% forecast, 0.4 percentage point is accounted for by sin products.

It was in October 2014 when the inflation rate in the Philippines hit 4.3%.

The DOF said, “Food and non-food commodities see their respective rate of price increase relatively unchanged, while those of sin products may have likely accelerated.”

Higher prices of sin products “may be explained partly by price increase due to sin tax hikes and partly by the appropriate price adjustments of Mighty Corporation following its paying the right amount of taxes,” added the DOF.

While electricity bills and fuel prices rose in February, the energy price inflation is seen to have declined to 5.5% in February, from 7.2% in January, largely attributed to base effects. (READ: EXPLAINER: How the tax reform law affects Filipino consumers)

“Notice that in the first two months of last year, the electricity-and-fuels inflation rose to 6.2% from 2.5%. That is why the January 2018 electricity-and-fuels jumped to as much as 7.2%,” the finance department said.

“For February this year, the base is much higher, already at 6.2%; hence, the expected deceleration.”

The Philippine government is set to announce the official inflation rate for February on Tuesday, March 6. – Rappler.com