A spike in rice prices because of alleged lack of supply, a weak peso, rising oil prices abroad, better tax compliance of local cigarettes, and growing consumer demand accounted for the bulk of the 4.5 percent inflation in April.
“Inflation rose mainly because of local and global factors. TRAIN accounted for only 0.4 percentage points of the 4.5 percent. In other words, if you could buy items for P100 last year, you need to spend P104.50 now for them and of that increase, only 0.40 (forty centavos) was due to TRAIN,” said Department of Finance (DOF) Undersecretary Karl Kendrick Chua.
It is convenient to blame the tax reform package and ask for its suspension but “we have to match the proposed solutions to issues we want to address, and TRAIN is not the main reason for inflation,” he said.
Regarding rice, the government has already transferred the National Food Authority (NFA) to the Department of Agriculture (DA) for better coordination. But rice prices can still be up to P7 per kilo lower if imports are allowed freely but subject to tariff. Right now, the quantity of imports is limited by a quota and importers need to apply for a license, constricting supply in the process.
“Allowing the private sector to import rice but with tariffs will improve the supply response of the grain in the market and bring down rice prices. This will benefit the poor the most as rice accounts for 20 percent of their consumption,” Chua said.
Oil prices abroad also rose because of unexpected geopolitical and global economic factors affecting supply like lower production from Venezuela, the potential US sanctions on Iranian oil exports, voluntary output cuts by the oil cartel and Russia, he said.
The additional excise tax on oil and oil products arising from the TRAIN accounted for only 0.2 percentage points, he said.
Chua said that despite the uptick in inflation, both self-rated poverty and hunger fell to record lows in the first quarter as shown by a Social Weather Stations (SWS) survey during that period.
Self-rated poverty decreased to 29 percent in the first quarter of 2018 from 35 percent during the same period last year according to the SWS survey, while the incidence of hunger among families fell to 10 percent from 16 percent in December and from 12 percent in the first quarter of 2017 even when inflation increased.
“This indicates that price increases are still moderate and that living standards are improving, most likely due to higher income from TRAIN and better jobs,” Chua said.
The peso has weakened for various factors, including rising interest rates in the US. For OFWs, this means they will get more pesos for their dollars to cover for the higher prices.
For cigarettes and sugar-sweetened beverages (SSBs), he said TRAIN specifically raised the taxes on them to discourage consumption and protect public health, not really to raise revenues.
If the head of the family, for instance, smokes less or quits altogether, the savings mean more money for the family. And a healthier population means less expenses for the Philhealth program and state-run hospitals like the Lung Center of the Philippines (LCP) and the Philippine General Hospital (PGH), and the savings here mean more resources and better services for those in real need of medical treatment.
The same thinking goes with sugar, which medical science has tagged as the main reason for a lot of diseases including diabetes, obesity, and heart disease, he said.