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TRAIN won't raise inflation -- DBCC.

By Chino S. Leyco

The rate of increase in consumer prices will remain subdued next year despite the expected impact of the recently enacted tax reform law on purchasing power, the Duterte administration's economic team said.

As the Bangko Sentral ng Pilipinas (BSP) expects the Tax Reform for Acceleration and Inclusion Act (TRAIN) would raise inflation by one percentage point in 2018, the Development Budget Coordination Committee (DBCC) believes the government has an offsetting measure.

Monetary Board Member Felipe M. Medalla, who attended last Friday's DBCC meeting, noted that the removal of quantitative restriction on rice imports would drag-down inflation by around one percentage point.

Based on the BSP's preliminary estimates, the TRAIN law would raise inflation by up to one percentage point next year and by less than half percentage point in 2019.

"The government itself has prioritized the elimination of QRs rice in replacement by a 35 percent tariff. With that calculation, prices will lower by seven percent, so rice alone will more than offset the negative effects of TRAIN," Medalla said.

The inter-agency DBCC maintained last week its inflation target at a range of 2.0 percent to 4.0 percent from next year until 2022.

"You must remember, the long-term effects of TRAIN are different from short-term effects. The long-term effects are anti-inflation, to the extent that infrastructure will reduce transportation cost, increase productivity," Medalla said.

"Initially you will have cost-push effect in the higher indirect taxes. If an increase in inflation is transitory, no need for a monetary policy response because after all eventually inflation will settle down," he added.

Budget Secretary Benjamin E. Diokno, meanwhile, said the reduction in withholding tax rates will put less pressure on higher wages, which should somehow temper inflation.

Earlier, Finance Undersecretary Gil S. Beltran said the lifting of the quantitative restrictions on rice imports in favor of tariffs will result in the reduction in the retail price of the food staple by as much as R7 a kilo and help free some 730,000 Filipinos from poverty.

Beltran expounds a 35-percent import tariff on rice in lieu of restricting rice import volumes would encourage private traders to bring in the staple into the country, which would, in turn, allow the influx of cheaper rice in the domestic market.

The finance official said a reduction in rice prices would be beneficial to the majority of poor households that spend at least 20 percent of their budget for rice, citing recent studies done by the National Economic and Development Authority.

To ultimately remove the QR, the over one-decade-old Republic Act No. 8178 or the Agricultural Tariffication Act of 1996, which had put the rice import quota in place, must be amended.

Since the government imposes a quota on rice imports, domestic prices are vulnerable to shocks resulting from meager supply.

The QR puts the burden of rice supply and demand to the government, whereas the market forces are being limited by the quota system.


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Title Annotation:Business News
Publication:Manila Bulletin
Date:Dec 24, 2017
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