BSP expects inflation back at 2 to 4% target

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) said inflation may revert back to the two to four percent target this year despite the uptick in the pump prices of petroleum products brought about by rising global prices and higher excise tax.

BSP Assistant Governor Francisco Dakila said in a press conference the central bank’s Monetary Board has already incorporated the second tranche of increase in excise tax on oil products under Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law at the start of the year.

“We already incorporated the impact of higher excise taxes on fuel so that even with the higher excise tax on fuel we expect inflation to revert back to the target range for the two years that I have mentioned,” he said.

Based on its latest assessment last Dec. 13, the BSP lowered its inflation forecasts to 3.2 percent for 2019 and to three percent for 2020.

“Our oil price assumption during that meeting was $60.67 per barrel for 2019. So you can see there is still some cushion even with the current uptick in oil prices,” Dakila said.

According to Dakila, the daily spot crude oil price in Dubai hit $56.21 per barrel as of Jan. 8, bringing the year-to-date average to $54.73 per barrel.

The TRAIN Law, among other major adjustments to the local tax structure, imposed a P6 per liter fuel tax spread out through three years. The first tranche of P2.50 per liter was imposed in January last year followed by a P2 per liter increase this month and P1.5 per liter in January next year.

Dakila said the impact of the excise tax on oil is minimal, adding about eight basis points to the 2019 inflation.

He explained the biggest contributor to the slowdown in inflation this year would be the impact of the passage of the amendments to the two-decade old Republic Act 8178 or Agricultural Tariffication Act of 1996 lifting the curbs on rice importation.

“The main driver for the downturn in inflation for the year is the progress on the Rice Tariffication Bill. Our assessment is that can reduce inflation by about 0.8 percentage points because of high weight of rice in the consumer basket,” he said.

According to Dakila, a large portion of the budget of critical households goes to rice. “So the impact of reduced prices of rice would be dominant,” he said.