Economists expect higher inflation

MANILA, Philippines — Economists of private banks expect inflation to climb this year due to the implementation of the tax reform law, rising global oil prices, weakening peso and higher public spending, according to a survey by the Bangko Sentral ng Pilipinas (BSP).

Based on the Private Sector Economists’ Survey of the BSP for December 2017, inflation is expected to settle at 3.6 percent this year, up from 3.4 percent in the previous survey.

“For 2018, analysts noted possible upside risks to inflation, such as the implementation of the government’s tax reform program, volatile global oil prices, weakening peso, rise in utility rates and food prices, higher transport fare and higher government spending,” the BSP said.

On the other hand, the central bank said private economists also see downside risks to inflation.

These include the impact of a possible global economic slowdown due to some geopolitical tensions in the Middle East and Korea, slower economic growth in China, and the risk of recession and deflation in Japan and the euro zone.

Despite the expected increase in inflation, the BSP said analysts see an 81.4 percent probability that average inflation for 2018 would settle within the government’s target range of two to four percent.

Meanwhile, the inflation forecast for 2019 averaged at 3.5 percent, up from the previous forecast of 3.4 percent.

Starting Jan. 1 this year, the government enforced Republic Act 10963 or the Tax Reform for Acceleration and Inclusion

(TRAIN) Act, which contains package 1A of its Comprehensive Tax Reform Program.

The law seeks to lower personal income taxes and unify estate taxes, while improving revenues through the expansion of the value-added tax base and the adjustment of excise taxes on oil, automobiles, sugar-sweetened beverages, coal and tobacco.

According to the latest estimates from the BSP, the revenue-generating provisions of the law are seen to raise inflation by less than one percentage point.

  However, BSP Deputy Governor Diwa Guinigundo earlier said the inflationary impact of the law could be lower.

Earlier, the BSP announced an inflation forecast of 3.4 percent for 2018 and 3.2 percent in 2019.