June 5, 2018

JOINT STATEMENT ON THE MAY 2018 INFLATION REPORT

We, the economic managers of the Duterte Administration, reiterate the government’s unwavering commitment to improve the lives of the Filipino people and bring lasting change to our country. The administration is steadfast in the conviction that we can build a prosperous, high-income economy with a predominantly middle-class society by 2040. Toward this objective, our economic program must generate the required resources so that we can continue to make investments in our people’s health and education, security and public order, and to build world-class infrastructure.

Staying the course will not always be easy, but we owe it to our people, our children, and future generations. We know that we are going through a challenging period. The government is closely monitoring and taking steps to address the difficulties experienced by Filipino families today arising from higher prices. According to the Philippine Statistics Authority, the inflation rate for May 2018 was 4.6 percent. This was driven primarily by higher rice, corn, fish, tobacco, and personal transport prices, the latter largely driven by rising world crude oil prices.

The increase in the international oil prices beyond the programmed level of 60 dollars per barrel contributed 0.5 percentage points to the overall inflation rate in May 2018. This means that for every additional peso due to inflation, one pays 11 centavos more. Adding other external and domestic factors together, their joint contribution to the inflation rate is 0.7 percentage points. This means that for every additional peso due to inflation, one pays 15 centavos more. Compared to these, the effect of excise taxes on petroleum, sweetened beverages, and tobacco under the Tax Reform for Acceleration and Inclusion law, or TRAIN, remains at 0.4 percentage points, the same as in April 2018. That amounts to 9 centavos for every additional peso due to inflation.

Major oil exporting countries are already discussing the possibility of increasing production. When they do this, we know this will bring down the cost of our oil imports and prices at the pump. In the meantime, the Department of Energy (DOE) has already made arrangements with oil companies to provide discounts to public utility vehicles and the Department of Transportation is finalizing guidelines for fuel subsidies under the TRAIN law. DOE is also exploring whether we can import oil from non-OPEC countries.

The Department of Trade and Industry (DTI) is continuously monitoring prices of commodities, including food products, ensuring that retailers are in line with agreed suggested retail prices (SRPs). We also expect large tranches of rice imports to arrive starting this month, making food cheaper for the Filipino family.

We are of one mind that one of the best ways to address high food prices is for Congress to ensure urgent passage of the Rice Tariffication Act. The Bangko Sentral ng Pilipinas (BSP) estimates that this will reduce 2018 inflation by around 0.4 percentage points if implemented in the third quarter. More importantly, we estimate that this policy shift will drive down the price of rice by up to 7 pesos per kilo for the Filipino family.

Still, we must continue to address the effects of higher prices on the poorest families by continuing disbursement of TRAIN’s Unconditional Cash Transfers (UCT) given on top of the Pantawid Pamilyang Pilipino Program (4Ps) cash grants. The Department of Social Welfare and Development (DSWD) and Landbank have distributed the UCT top-up to around 80 percent of 4Ps beneficiaries and will complete distribution to recipients over the next few weeks. We will also accelerate UCT distribution to an additional 2.6 million households and more than 2.5 million indigent senior citizens who qualify as social pensioners.

Programs of government that aim to improve the welfare of the poor will benefit greatly from the rollout of the Philippine ID system, which Congress passed a few days ago. Other social investments we are already making include free tuition in State Universities and Colleges (SUC).

TRAIN is also vital for our Build, Build, Build Program. We must bridge the infrastructure gap that has painfully made our country lag behind our ASEAN neighbors. Through this program, we seek to create more than one million jobs for our fellow Filipinos through 2022, while reducing logistics costs for businesses, especially micro, small, and medium enterprises (MSMEs), many of which are located in the provinces.

Suspending TRAIN and adopting other band-aid solutions will only have a minimal and short-term impact on inflation and will stifle our growth, further delaying our nation’s progress toward becoming an upper-middle-income country by 2019, such that around six million Filipinos would be lifted out of poverty by 2022. We must keep in mind that TRAIN reformed a previously unfair and harsh tax regime. It lowered the personal income taxes of most Filipinos except the very rich—increasing the take home pay of 99 percent of income tax payers. This, coupled with free higher education and new jobs created through our infrastructure build up, enables the Filipino people to spend more for themselves and for the benefit of their families.

We remain committed to doing all we can to invest in our people, and build safer communities and better infrastructure so that everybody will prosper. The economic team pledges its support in fulfilling President Rodrigo Roa Duterte’s promise of a strongly rooted, comfortable and secure life for all Filipinos. The Philippines is already on the path of high and sustained growth. We must stay the course.

          Benjamin E. Diokno                  Ernesto M. Pernia           Carlos G. Dominguez

    DBM                                        NEDA                                DOF

 

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