ING Bank expects another 1% rise in 2018 inflation amid tax reform

The movement of prices of basic goods and services in the Philippines is seen to move faster this year than last year, due to the newly-implemented tax reform package

Rappler.com, Jan 9, 2018

MANILA, Philippines – Dutch financial giant ING Bank said the trickle-down effect of the implementation of the 1st package of the comprehensive tax reform program would translate to a 1% rise in inflation in 2018.

Joey Cuyegkeng, senior economist at ING Bank Manila, said the indirect effects of Republic Act (RA) No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law would add another one percentage point to inflation this year, due to higher transport fares, higher wages, and production costs.

Cuyegkeng said this would be on top of the 0.8% to 1% increase in inflation, as a result of the direct impact of the TRAIN-related excise tax rates that took effect on January 1.

President Rodrigo Duterte had signed the TRAIN law last December, representing the 1st package of the government’s tax overhaul.

“Tax-reform related price pressures would also add to the price pressures,” Cuyegkeng said. (READ: EXPLAINER: How the tax reform law affects Filipino consumers)

He added that inflation would increase further to 3.7% in 2018, after the 3.2% in 2017 and 1.8% in 2016. The faster movement is also being attributed to the sharp rise in global crude oil prices.

The government has maintained an inflation target of 2% to 4% between 2017 and 2020.

Based on its latest assessment, the Bangko Sentral ng Pilipinas (BSP) Monetary Board expects inflation rising to 3.4% in 2018, before stabilizing to 3.2% in 2019.

“We believe that inflation pressures in 2018 would be more intense. Production rationalization in major economies of certain products would keep commodity prices high,” Cuyegkeng said.

The Asian benchmark crude oil price would rise by another 17% to $60 per barrel this year, according to ING Bank.

Cuyegkeng said the depreciation of the Philippine peso in 2017 contributed to a 33% increase in the global oil price.

“We expect BSP to hike policy rates by 50 basis points in 2018. The first hike is possible in [the] 2nd quarter and another in the 4th quarter,” Cuyegkeng added, citing 3 possible rate hikes by the US Federal Reserve this year.

He also expects the Philippines’ gross domestic product (GDP) growth to remain steady at 6.7% in 2018. – Rappler.com