DOF: Cash aid better option to tame accelerating inflation

MANILA, Philippines — The Department of Finance (DOF) said the government should continue its cash transfers instead of  suspending petroleum taxes to tame inflation, which ballooned to a six-month high of four percent in March.

In an economic bulletin, DOF chief economist Gil Beltran said the economy would face inflationary pressures on both food and non-food items from the second quarter onward.

For one, Dubai crude averaged $113.11 per barrel in March, rising by 21 percent from February and by 77 percent from a year ago.

“This was the first time since September 2014 that the monthly average breached the $100 per barrel level. The futures market for oil continues to be in backwardation, suggesting tight supply condition and high convenience yield associated with having on hand the physical commodity,” Beltran said.

As such, he said it is automatic for pump prices in the Philippines to shoot up. However, he warned that the government may commit a mistake in policy response if it opts to suspend petroleum taxes just to cut pump prices.

Beltran said just the richest 10 percent of the population would benefit from such a measure, and that the correct response would be to distribute cash assistance to affected stakeholders.

“Higher energy prices in the world market ultimately get translated into higher local pump prices. However, it would be a policy mistake to suspend fuel taxes since it will be the top 10 percent of the population that will gain the most, as they account for nearly half the fuel consumption in the country,” the DOF official said.

“The appropriate policy instrument to address elevated energy prices is targeted transfers to vulnerable groups rather than blanket non-taxation for all,” he said.

Last week the Department of Agriculture (DA) announced it would accelerate the issuance of fuel subsidies for farmers and fishermen. The DA said that just around 400 have so far received the fuel discounts of P3,000 allocated for them by the government.

On the other hand, the government also set aside P2.5 billion for the distribution of fuel cards to nearly 400,000 public utility vehicle drivers. However, both programs were hit with delays due to the election spending ban.

Further, Beltran said the DA should speed up its hog repopulation measure to negate the impact of the African swine fever (ASF) on commodity prices and, in general, food security.

“The lingering effects of the ASF continues to threaten food security and is further complicated by the ongoing geopolitical tension that has implications on both food and energy security. The country needs to repopulate decimated hog populations and momentarily supplement any shortfall with meat imports,” Beltran said.