2-4% inflation target for 2017-2018 stays – BSP

By Lawrence Agcaoili (The Philippine Star), October 27, 2016

Based on preliminary estimates, BSP Deputy Governor Diwa Guinigundo said the higher excise tax on petroleum products, the corresponding rise in transport fares, and higher electricity rates would stoke inflation by 0.47 percent next year and by 0.43 percent in 2018.

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) said inflation would stay within the two to four percent target over the next two years despite the impact of the proposed imposition of higher excise tax on petroleum products and its second round effect on transport fares.

Based on preliminary estimates, BSP Deputy Governor Diwa Guinigundo said the higher excise tax on petroleum products, the corresponding rise in transport fares, and higher electricity rates would stoke inflation by 0.47 percent next year and by 0.43 percent in 2018.

Guinigundo said inflation is seen rising to 2.9 percent next year before easing to 2.6 percent in 2018 from the projected 1.7 percent this year.

Even if you add the estimated increase of 0.47 percent and 0.43 percent, Guinigundo explained inflation rates for 2017 and 2018 are expected to stay within the midpoint of the BSP target.

“So we are still within the inflation target of two to four percent for both years 2017 to 2018,” he added.

Inflation kicked up to an 18-month high of 2.3 percent in September from 1.8 percent in August due to faster increase in food and non-food prices. This brought the average inflation to 1.6 percent in the first nine months.

The BSP sees a steady rise in the price of oil in the world market from $40.50 per barrel this year to $48.07 per barrel in 2017, and to $50.68 per barrel in 2018.

Finance Secretary Carlos Dominguez has forwarded to Congress the proposed comprehensive tax reform program of the Duterte administration that support programs for infrastructure and human capital, while bringing down the oppressive tax burden on wage earners.

The higher excise tax on oil is seen generating the biggest revenue with P199.6 billion followed by the expansion of value added tax base with P166.8 billion, tax on sugary product with P48.7 billion, higher tax on alcohol and tobacco products with P45.5 billion, and excise tax on motor vehicles with P10.9 billion.

The Finance department is looking at increasing the excise tax on regular, leaded, unleaded, and premium gasoline to P10 per liter from the current P4.35 per liter.

It also intends to slap an excise tax of P6 per liter on diesel asphalts, bunker fuel oil, denatured alcohol used for motive power, kerosene, LPG and processed gas. These products are currently exempted from excise tax.