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‘High prices to bite even with lower November inflation’

CONSUMERS will continue to feel the pangs of high prices in the months to come even as inflation slowed to 6 percent in November, because the tax hike on fuel next year will permanently make basic goods costly, sector leaders said on Thursday.

They said this just hours after the inflation report came out and the Executive announced it was withdrawing the planned suspension of the second-round fuel tax in January.

Budget Secretary and Development Budget Coordination Committee (DBCC) Chairman Benjamin E. Diokno immediately allayed fears that prices of goods will rise with the government’s decision to push through with the next increase of P2 a liter in fuel excise tax.

He said imported oil prices are projected to remain cheap until 2022, thus ensuring there won’t be a repeat of the 2018 scenario, when an unexpected steady rise in world oil prices compounded the impact of the first-round fuel excise tax imposed under the Tax Reform for Acceleration and  Inclusion (TRAIN) law.

Consumer groups told the BusinessMirror, however, the public must remain wary even if inflation in November was recorded at 6 percent. Inflation, or the general increase in commodity prices, last month was slower than the 6.7 percent posted in October, but faster than the 3 percent recorded in the same month last year.

Louie C. Montemar, convenor of Bantay Konsyumer, Kuryente at Kalsada, said it is “hard to rejoice” over the slower inflation given that President Duterte just approved the continued implementation of fuel tax hike next year. An excise of P2 per liter will be imposed on petroleum products next year as provided under the TRAIN law.

“We must remain wary given government’s decision to pursue increased excise tax rates on petroleum products for 2019. That hike will only make oil prices permanently costly,”

Montemar said.

“It is also hard to rejoice when we expect increased prices in the holiday season,” he added.

Core inflation

Laban Konsyumer Inc. President Victorio Mario A. Dimagiba agreed with Montemar’s statement, and argued core inflation accelerated in November.

“Core inflation went up from 4.9 percent to 5.1 percent, meaning high inflation solidified for the year. The 6-percent November inflation was largely due to price reductions on fuel and agricultural products, like rice,” said Dimagiba, a former trade undersecretary.

“However, prices of manufactured and processed food remain high,” he explained.

Both Montemar and Dimagiba pointed to the TRAIN law as one factor stoking inflation again. They said it will not only impose additional duty on fuel next year, but also another P50 per metric ton tax on both domestic and imported coal.

This is the reason Laban Konsyumer on Wednesday filed its second motion in the Supreme Court to stop the TRAIN law. In the motion, the group said the High Court has to step in given the government’s flip-flopping on whether to suspend the next round of fuel excise. The urgent motion was filed hours before the Cabinet, tackling the economic managers’ move to retract earlier support for a suspension of the 2019 excise tax round, decided to pursue implementation.

“The inevitable crippling burden to low-income and poor consumers caused by the contested provisions, and the implementation of the second tranche in 2019. The economic managers [recommending] the President, and the latter [approving], to withdraw an earlier decision to suspend the excise taxes on fuel on January 2019 of the TRAIN law should enable this Honorable Court sufficient basis to act now,” Laban Konsyumer said.

Overhaul of law

Montemar, on the other hand, has a different proposal in mind. He wants the government to totally overhaul the TRAIN law, and revise its provisions on consumption taxes, such as on sugar-sweetened beverages, fuel and coal.

“What should be done? The government needs to redesign TRAIN and make it a means to collect more from the richest taxpayers, both individuals and corporations. Such a hike in tax rates will definitely be noninflationary,” Montemar said.

“A total redesign [should be] in effect. The bottom line is increased personal and corporate tax for the highest earners. This cuts across so many provisions. The emphasis is on direct taxes over indirect taxes, like VAT and consumption taxes,” he added.

Oil-price forecasts

According to the table of oil price forecasts (as of  November 27) provided to reporters by the Department of Budget and Management, oil futures projection indicates Dubai crude to cost $59.98 per barrel in 2019, $60.21 per barrel in 2020, $60.13 dollars per barrel in 2021 and $60.53 per barrel in 2022.

Meanwhile, the Department of Energy is forecasting Dubai crude to fall to $55.23 per barrel next year, $55.20 per barrel in 2020, $54.57 per barrel in 2021 and $54.17 per barrel in 2022.

Diokno had said on Wednesday there is no need for the DBCC  to change its inflation forecast for next year since prices of goods will still fall within the government’s target range even with the continued implementation of the next round of fuel excise tax hike.

“Before we proposed this, we asked them [Bangko Sentral ng Pilipinas] about its impact on inflation. We are confident that we will not change our forecast. Our forecast for next year is 2 to 4 [percent]. We will stick by that.” he told reporters.

The DBCC last week retracted its earlier recommendation to the President, a month earlier, that they support suspending the next increase in fuel excise taxes as oil futures projection back then indicated the likelihood of Dubai crude prices hitting $80 per barrel for several months.

President Duterte approved at Tuesday’s Cabinet meeting his economic team’s new recommendation, based mainly on the due sharp turnaround in global oil prices.

Even with the additional P2 per liter with the second tranche of oil excise taxes, pump prices will still be lower by about P10 to P12 compared to its peak in October 2018. Diesel at its peak was P49.80 per liter. It is projected to be P37.76 per liter in January 2019, inclusive of the second tranche of petroleum excise taxes.

Gasoline (95 octane) at its peak was P60.90 per liter. It is projected to be P50.82 with the additional P2 excise tax in January 2019.

Moreover, Diokno said the condition for suspending the second tranche of oil excise taxes also does not exist, since the TRAIN law states that the scheduled increase in the excise tax on petroleum products can only be suspended when the average Dubai crude oil price based on Mean on Platts Singapore reaches or exceeds $80 per barrel within a three-month period.

Besides, the suspension of the second tranche of oil excise taxes is estimated to result in a full-year net revenue loss of P43.4 billion, assuming Dubai crude oil prices average $65 per barrel in 2019.

“As you know, we are trying to maintain a deficit at a sustainable level of 3.2 percent of gross domestic product in 2019,” Diokno said in a statement. “A loss of P43.4 billion in revenues will lead to a commensurate decrease in government expenditures.”

Lastly, inflationary pressures have subsided with government efforts to boost food supply plus the cumulative interest rate hike of 175 basis points taken by the Bangko Sentral ng Pilipinas.