ANZ: Inflation may breach BSP target

By Lawrence Agcaoili (The Philippine Star), Feb 22, 2018

MANILA, Philippines — The nationwide inflation rate may breach the 2018 target set by the Bangko Sentral ng Pilipinas (BSP) due to the implementation of the new tax reform law, according to the ANZ Banking Group.

Eugenia Victorino, economist for Asia Pacific at ANZ, said inflation may climb to 4.1 percent this year from 3.2 percent last year. “If realized, it would be the first inflation overshoot since 2008,” she said.

President Duterte signed Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Act last Dec. 19, reducing the personal income tax, but raising the excise tax on fuel, sweetened beverages, tobacco and motor vehicles.

The BSP has set an inflation target of two to four percent between 2018 and 2020. Based on its latest assessment, the Monetary Board raised its inflation forecast to 4.3 from the original target of 3.4 percent this year and to 3.5 instead of 3.2 percent for 2019.

This, after inflation accelerated to its highest level in more than three years to four percent in January from 3.3 percent in December due to the first round impact of the tax reform law.

For next year, Victorino said inflation may ease to 3.4 percent.

While the tax reform law had a direct effect on selected items, Victorino said the rate of increase in core prices suggested that some of the second-round effects of the tax reform had already filtered through.

She said transport accounts for 7.8 percent of the consumer price index basket, while electricity takes 4.5 percent while non-alcoholic beverages account for 2.7 percent and tobacco takes one percent.

According to Victorino, domestic demand would remain strong but the risk of some moderation in consumption growth remains.

She noted the growth in car sales had eased significantly in January .

However, she said while take-home pay is higher for taxpayers, non-tax payers are facing higher prices.

“In the past, every one percent increase in headline prices translate to a corresponding decrease in private consumption by 0.3 percent,” Victorino said.