S&P: Train impact easing but inflation to remain high
The inflationary impact of recent tax reforms is starting to ease but global oil prices and recent weather disturbances will keep Philippine consumer price growth elevated in the next few months, S&P Global Ratings said.
“Regarding inflation, the one-off effects of the tax reform are probably starting to dissipate,” the credit ratings agency said in its recently released “APAC Economic Snapshots” report, referring to the Tax Reform for Acceleration and Inclusion (Train) Act.
“But with global crude prices and the recent typhoon, food and fuel prices are likely to keep prices high in the next few months before peaking,” S&P added.
Passed last December and implemented at the start of 2018, the Train law — the first of five packages under the government’s Comprehensive Tax Reform Program — raised taxes on fuel and cars, among others, in exchange for lower personal income tax rates.
The law has been blamed for fueling inflation, which has remained above the 2.0-4.0 percent target since March and hit a new five-year high of 5.7 percent in July. Year to date, consumer price growth also remains above target at 4.5 percent.
Economic managers insist that Train’s inflationary impact is minimal, instead pointing to high oil prices, but the Bangko Sentral ng Pilipinas (BSP) has said that the law contributed a direct 0.7 percentage points — rising from the 0.4 percent offered by the Finance department in May — to last month’s inflation figure.
In its second quarter inflation report, the BSP said estimated Dubai crude futures as of end-June showed a higher path for this year up to 2021 compared to three months earlier. Inflation, the central bank has said, will likely hit its 2018 peak this month or in September before returning to the target range next year.
In the report, S&P estimated Philippine inflation to average 4.3 percent before easing to 3.4 percent by 2019, lower than the BSP forecasts of 4.9 percent and 3.7 percent that were upwardly revised from 4.3 percent and 3.3 percent earlier this month.
The central bank’s policymaking Monetary Board, which also issued a 3.2-percent inflation forecast for 2020, said it considered a jeepney fare hike and higher water rates, tobacco excise taxes and Dubai crude oil prices in deciding to revise its estimates.
For 2019, monetary authorities took into account an expected decline in global non-oil import price growth and oil, food and excise taxes.
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