The Bangko Sentral ng Pilipinas expects inflation to average 4.3 percent this year and breach the 2-4 percent projected range due to the impact on consumer prices of the first tax reform package and the expected oil price hikes.

The Monetary Board, the BSP’s policy-making body, kept the policy rate steady at 3 percent while also maintaining the prevailing rates for the overnight lending and deposit facilities.

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In a statement, Governor Nestor A. Espenilla Jr. said the BSP’s latest baseline forecasts showed higher inflation outturns this year, such that its 2018 forecast was raised from 3.4 percent during the previous policy meeting in December.

Francisco G. Dakila Jr., managing director of the BSP’s monetary policy subsector, explained to reporters that the impact of tax reform was not included in their baseline forecast during the Dec. 14 meeting.

“Now that the TRAIN has been passed, the baseline assessment now includes the TRAIN’s impact,” Dakila said, referring to the Tax Reform for Acceleration and Inclusion act.

Signed by President Duterte in December, the TRAIN Law jacked up or slapped new excise taxes on oil, cigarettes, sugary drinks and vehicles, among other goods, to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of P250,000.

The government reported last Tuesday that headline inflation rose to an over three-year high of 4 percent year-on-year in January as average consumer prices increased faster due to the new or higher excise taxes slapped on a number of products under the TRAIN Law.

Government data showed that the rate of increase in prices of basic goods last month was the fastest since the 4.3 percent posted in October 2014.

“The inflation outturn for January was within expectations but close to the high end” of the target range for 2018, Dakila noted.

Espenilla attributed the higher inflation rate in January to “better enforcement of tax laws on tobacco as well as temporary increases in prices of selected food items, such as fish and vegetables.”

Under the TRAIN Law or Republic Act No. 10963, the unitary excise tax slapped on cigarettes rose to P32.50 per pack effective Jan. 1 from P30 a pack last year.

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The National Economic and Development Authority, meanwhile, partly blamed the higher prices of food items last month on the “lingering effects of successive typhoons that occurred in late 2017.”

“Although the inflation number for 2018 has been adjusted upward, the change in inflation due to supply-side factors is essentially a transitory issue,” Dakila said.

“By March next year, we should be back within the inflation target band,” Dakila added.

Espenilla said “the inflation path is expected to moderate and settle within the target range of 2-4 percent in 2019.”

The BSP nonetheless also raised its inflation forecast for 2019 to 3.5 percent from 3.2 percent previously.

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