Taming inflation

Just before the Philippine Statistics Authority (PSA) released its adjusted February 2018 inflation rate of 3.9 percent using 2012 as the base year, majority of private sector economic analysts were already warning of inflation rising over the roof of the government’s two to four percent estimate.

Inflation watchers would have been proven correct if the PSA had not revised its reading, and instead based its computation on 2006 prices. As it turned out, the PSA’s initial estimate of a 4.5 percent inflation rate in February would have been even higher than the private sector’s.

Quibbling with such figures, and even arguing over the merits and convenience of changing the basis of revised computations is something that economists, from both the public and private sides, would likely indulge in.

But to the man on the street, who needs to pull out his wallet for anything and everything that he needs to survive, the glaring immutable fact is that prices of basic commodities have shot up. And the culprit for him, rightly or wrongly, is the new tax package that was passed late last year and implemented at the start of this year.

Truly, the Tax Reform for Acceleration and Inclusion (TRAIN) Law would be to blame, and not just partially. As intended, prices of domestic petroleum products, sugar-sweetened beverages, and tobacco products have all increased because of the new law.

‘Coincidences’

Unfortunately, most especially because of the tax increase on oil products, prices of almost every basic commodity and service has been affected, and exacerbated by two incidences – or, if one would put it, coincidences – that had recently happened.

When the proposed TRAIN Law was being hammered out by the Department of Finance, the idea of reforming the tax structure on oil seemed timely since, at that time, global crude prices were at a low point, and the peso was trading without too much fuss.

Indeed, raising the tax take from oil products sold at the pump at such ideal times would have been bearable to many Filipinos who would have received extra spending money from foregone income taxes, thanks also to the TRAIN Law.

But – and this is a nightmare the government’s economic team would rather not want – prices of crude oil in the world market started creeping up coincidentally at about the time the TRAIN Law was approved. The same was true for the depreciating value of the peso against the US dollar.

It would have been difficult for our government finance executives to foresee that crude oil prices would spike from less than $50 a barrel to over $60 a barrel in a span of less than half a year, and the peso would trade at an average of P50 to $1 versus P45-$1 a few months ago.

These days, you need more pesos to buy a barrel of the more expensive crude oil, and add to this the effect of ad valorem and excise tax on imported oil, and you would understand why the price of a liter of gasoline or diesel has increased by double digits.

Of course, we all know how such increases in gasoline and diesel prices affect almost everything in the Philippines. An adjusted 3.9 percent inflation rate in February? Not surprising. Will the inflation rate breach four percent this year? Don’t be surprised.

Mitigating measures

Even Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. is resigned to the possibility of seeing average inflation in 2018 settle at above four percent given the unexpected turn of events in the global arena, higher crude oil prices, and a stronger US economy included.

While qualifying that this was something expected (“in line with our updated forecast for a temporarily higher inflation than target range in 2018 due to transitory factors”), Espenilla quickly added that mitigating measures have been lined up by the government to address the temporary inflationary effects.

Among the measures singled out are an earlier release of unconditional cash transfers to poor families, tariffs on rice to replace quantitative restrictions, possible transport subsidies, and tighter government monitoring on basic commodity prices to root out attempts to manipulate prices by unscrupulous traders and organized crime.

The BSP chief, alongside the whole economic team, is confident inflation will return to “normal” levels next year to somewhere in the middle of the forecasted two to four percent.

Here’s hoping that this is not wishful thinking on our government bureaucrats’ part, and that extraneous circumstances beyond the ordinary will not happen. But as they say, who can predict the future?

Potential drag

Businesses are noticing the rising number of holidays that are being passed by lawmakers, the latest being Dec. 8 as a special non-working holiday to commemorate the Roman Catholic Church’s celebration of the Feast of the Immaculate Conception.

This has brought the total number of holidays in the country to increasingly expensive proportions, but more importantly, it has opened a Pandora’s box on the encroachment of politics into religious beliefs, or more specifically, when Congress panders to interdenominational sectors to earn votes. Is a non-working holiday to honor Iglesia ni Kristo founding not far behind?

Before things go haywire and unmanageable, with other religious denominations asking for more days, rules have to be agreed on that define what really deserves to be called a national holiday, a non-working holiday, a special non-working holiday, etc.

The country’s economy is heating up, and too many holidays where workers are paid overtime rates, may end up being a drag and hurt our competitiveness.

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