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Philippines – DOF: TRAIN impact led to inflation spike in Feb

MANILA, Philippines — The higher-than-expected inflation rate in February may be attributed partly to the implementation of the newly implemented tax reform law, the Department of Finance (DOF) said yesterday.

Finance Undersecretary Karl Kendrick Chua said the increase in inflation was due to the effects of the Tax Reform for Acceleration and Inclusion (TRAIN) Act as well as other factors.

“TRAIN has begun to impact inflation as expected, although other factors are the bigger contributors to higher inflation,” Chua said.

Inflation accelerated to 4.5 percent in February, the fastest growth in more than three years.

Chua said this was driven by higher corn, fish, tobacco, and personal transport prices, all of which grew double digits.

He said tobacco inflation, in particular, remained high at 22.9 percent due to the tax reform law and improved tax compliance of Mighty Corp.

“Higher tobacco inflation is expected to persist until September 2018 as Mighty Corp., now under JTI, is now paying the right taxes,” Chua said.

If not for this, Chua said tobacco inflation would have only been eight percent due to excise tax adjustments under TRAIN. He said this would have pulled down overall inflation to 3.7 percent.

Chua also said private vehicle owners have begun to feel the pinch of higher fuel prices, partly due to the excise tax increase under the new tax reform law.

“However, the bigger cause is the higher global crude oil price and the peso’s depreciation,” Chua said.

Chua said vehicle owners paid 14.5 percent more in fuel, of which half is attributable to higher excise tax, while the other half is due to higher crude oil prices and a weaker peso.

On the other hand, he said public commuters only paid 2.9 percent more as most public utility vehicles have not adjusted their fares.

Month-on-month, Chua said inflation grew 0.8 percent, which is in line with the DOF projection.

“However, the higher month-on-month inflation might suggest some profiteering, which we have already observed in January,” Chua said.

In line with this, Chua said the Department of Trade and Industry, and the Department of Energy have committed to continuously monitor any unusual price increase in order to prevent profiteering.

He said major oil firms have also agreed to offer discounts to jeepneys, a move which is expected to help ease prices.

The undersecretary also ensured that a moderate increase in inflation is “expected and not alarming” in a fast-growing economy. In 2017, the Philippine economy grew 6.7 percent.

“Once market adjusts, we expect inflation to ease in the coming months with the average full year inflation well within the target set by the BSP,” he said.

Source: https://www.philstar.com/business/2018/03/09/1794884/dof-train-impact-led-inflation-spike-feb#K52fsHf55C0phYh2.99