6%

As anticipated, the inflation rate for November dropped significantly the month before. This is a good sign.

November inflation was reported at 6%. This is slightly slower than the 6.2% projected by business analysts. It is significantly lower than the 6.7% September-October rate.

Our economic managers projected this deceleration earlier. The lower inflation rate is due principally to sharply lower food prices. Therefore, the lower inflation rate benefits the poor more since they spend a higher percentage of their incomes on basic commodities.

The sharply lower inflation rate is also due to the sharp decline in fuel prices, although the full decline will fully reflect in the inflation rate for this month and beyond. Crude oil dropped from $84 to under $60 per barrel.

After seven weeks of decline, oil prices began a mild rally early this week. The rally is due to the likelihood the oil exporters will cut supply in due time. That likelihood is made more imminent by the agreement forged between Saudi Arabia and Russia, two of the largest exporters of fossil fuels.

The rally is also due to Donald Trump’s misrepresentation of the outcome of his talks with Chinese leaders over easing trade tensions. Trump claimed the Chinese made substantial concessions that led to the postponement of scheduled tariff increases on US imports from the world’s second largest economy.

As the true state of the trade relationship between the two largest economies became clear, the New York Stock Exchange dropped 800 points in Tuesday trading. Oil prices are expected to follow suit, erasing the brief rally early in the week.

The Department of Energy forecasts oil prices to be in the $50 per barrel range through most of the next year.

Our inflation rate will likely decline further after we shift to a tariff regime in rice imports. Legislation toward a more efficient rice trading regime is almost ready to pass.

Meanwhile, improvements in our infrastructure backbone should lower logistics costs and bring down food prices over the long term. Much of the final price of food products is due to the very high spoilage and spillage rates brought about by our weak logistics system. Fortunately, many of our conglomerates now realize there is profit to be made from investing in better logistics.

There is really no guarantee present trends will hold over a longer term. There is much volatility in the global market, driven mainly by fears over a trade war. There are indications, too, of a potential slowdown in global economic growth.

The Philippine economy cannot be immune to larger global trends.  Our own growth is hinged on sustained global expansion.

Nevertheless, it is reassuring that the factors that caused us to have the highest inflation rate in the region are being addressed. Trust our economic managers on this.

Excise tax

Last Tuesday, President Duterte agreed with his economic managers that the P2 additional excise tax on oil products be restored as scheduled. The greater number of Filipinos will benefit from that decision, although opportunist politicians seeking to score populist points in time for the midterm elections continue to politicize the matter.

The restoration of the scheduled excise tax will add P43.4 billion to the national coffers. That is not a small sum. It will help ensure enough fiscal space to help government make economic investments that will create jobs and implement social programs in education and health.

The single factor that could influence the inflation rate upwards is a large and unsustainable budget deficit. The restoration of the additional excise tax on oil products will help us avoid that.

Our politicians tend to forget that the reduction in personal income tax rate under the TRAIN law (that everybody wants) comes with a trade-off. In order to offset the revenue loss arising from that, we needed to increase consumption taxes. The increased tax load on alcohol, sugary beverages and oil products offsets the revenue loss from the lower income tax rate.

If we fail to offset the revenue loss, we will be remiss in exercising fiscal discipline.

At any rate, pump prices today are lower than they were before TRAIN took effect. A restoration of the scheduled excise tax increase will not contribute to inflation.

Everywhere, fossil fuel is taxed heavily. This is because they produce social costs that the state must bear. Their prices should reflect those social costs. It will be irresponsible not to do that. The excise tax on fossil fuel products ought to be seen as a “sin tax.”

Populist politicians and leftist agitators foist a false utopia where taxes are low and social services abundant. Those literate in the realities of public finance and fiscal management know that.

A robust fiscal position will enable government to pursue the programs that will ensure more inclusive growth. It will help protect the domestic economy against the volatilities in the global economic order. It will help us invest further in our human capital.

On the contrary, a weak fiscal position will make our economy vulnerable. It will impair our social programs and undermine economic investments to modernize our economy.

Therefore, opposing the excise taxes in particular and the tax reform program more broadly is the ultimately anti-poor position.

I find it hypocritical that the legislators most loudly complaining about the restoration of the fuel excise taxes are also those seeking reelection. If they had solid economic arguments against the measure, they should either amend the law or seek a joint resolution suspending the excise taxes. They have done neither.