Inflation seen at 1.4% this month

MANILA, Philippines - The ongoing El Niño phenomenon and a new round of excise tax increases could push inflation higher this month, the chief economist of the Department of Finance (DOF) said.

“Consumer prices may rise, on average, by 1.4 percent for the month of February, slightly higher than that posted last month...,” Finance Undersecretary Gil Beltran said in an economic bulletin.

Inflation, as measured by the consumer price index, hit 1.3 percent in January. The government has set a two to three-percent goal for the year.

Last year, inflation averaged 1.4 percent, below the Bangko Sentral ng Pilipinas’ target.

For this month, Beltran said higher food prices should be expected due to lingering hot weather and impact of a recent typhoon that has put a dent on agriculture production last year.

The DOF official said prices of food and non-alcoholic beverages are expected to rise 2.4 percent from 1.7 percent in January.

“Food production is the lingering impact of El Niño (affecting sugar and coconut) and Typhoon Lando (affecting rice and vegetables) in Luzon,” Beltran said when sought for details.

According to government data, Lando was the strongest storm to hit the Philippines last year, resulting in P9.91 billion worth of damages to infrastructure and agriculture.

Lando hit the Northern section of the country, which produces the bulk of food delivered to Metro Manila and other regions.

Aside from food prices, alcohol and tobacco rates could also go up as a result of a new round of “sin” tax increases under RA 10351 enacted in 2011.

The law, among others, increased excise levies on alcohol and cigarettes per year until 2016 before rising by four percent each year from 2017.

“Alcohol comes from sugar. Tobacco usually rises when the new tax rate takes effect, but this is tempered by excessive releases in December to take advantage of lower tax rate,” Beltran said.

Still, the sub-index in alcohol and tobacco is seen to post average inflation of 5.4 percent this month, up from 4.7 percent in January.

Despite the possible uptick in February, Beltran said inflation would remain manageable this year, allowing the BSP to keep policy rates steady at four and six percent.

The central bank influences prices by managing credit demand. Lower policy rates mean banks can lend at cheaper rates to consumers and investors alike to boost growth.

“Benign inflation enable (the) BSP to maintain its monetary stance and sustain rapid economic growth,” Beltran said.