BSP expects inflation to revert to 2 to 4% target

The Bangko Sentral ng Pilipinas (BSP) said inflation may go back down to two to four percent despite the higher pump prices of petroleum products that resulted from the rising global prices and higher excise tax.

According to BSP Assistant Governor Francisco Dakila, the central bank’s Monetary Board has incorporated the second tranche of increase in excise tax on oil products under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, otherwise known as Republic Act 10963.

“We already incorporated the impact of higher excise taxes on fuel so that even with the higher excise tax on fuel we expect inflation to revert back to the target range for the two years that I have mentioned,” said Dakila.

Different laws and their effects

The TRAIN Law is one of the major adjustments done to the local tax structure. It includes the implementation of a P6 per liter fuel tax that’s spread out through three years. The first tranche, which was at P2.50 per liter, was imposed in January last year. The second tranche of P2 per liter was implemented this month. Finally, the third tranche of P1.5 per liter will be imposed January next year.

However, apart from the TRAIN Law, the slowdown in inflation can also be attributed to the passage of the amendments to the two-decade old Republic Act 8178 or Agricultural Tariffication Act of 1996.

“The main driver for the downturn in inflation for the year is the progress on the Rice Tariffication Bill. Our assessment is that can reduce inflation by about 0.8 percentage points because of high weight of rice in the consumer basket,” Dakila explained.