The ongoing geopolitical conflict in Eastern Europe would further complicate the lingering effects of the African Swine Fever (ASF) on consumer prices, the Department of Finance (DOF) said.
In a DOF Economic Bulletin released on Sunday, April 24, Finance Chief Economist Gil S. Beltran said that the Philippine economy will continue to face inflationary pressures from both food and non-food items in the coming months
“The lingering effects of the ASF continues to threaten food security and is further complicated by the ongoing geopolitical tension that has implications on both food and energy security,” Beltran said.
And the current situation overseas, particularly between Russia and Ukraine, does not provide any light at the end of the tunnel.
For this reason, Beltran believes that non-food price inflation will continue to be driven by the developments in global energy market in the short-term.
In March, Dubai crude oil averaged $113.11 per barrel, up by 21 percent from February and 77 percent from the same month last year.
This was the first time since September 2014 that the monthly average breached the $100 per barrel level.
“The futures market for oil continues to be in backwardation (i.e., the spot price is higher than near-term futures contracts which are, in turn, higher than longer-term contracts), suggesting tight supply conditions and higher convenience yield associated with having on hand the physical commodity,” Beltran said.
Higher energy prices in the world market ultimately get translated into higher local pump prices, he said.
But despite the skyrocketing fuel prices, Beltran warned against the proposal of suspending the excise taxes imposed on petroleum products.
“It would be a policy mistake to suspend fuel taxes since it will be the Top 10 percent of the population that will gain the most as they account for nearly half the fuel consumption in the country,” Beltran said.
“The appropriate policy instrument to address elevated energy prices is targeted transfers to vulnerable groups rather than blanket non-taxation to all,” he pointed out.
Earlier, Finance Secretary Carlos G. Dominguez III said suspending fuel excise taxes will only provide temporary and minimal relief to consumers, but entails detrimental impact on government’s fiscal position.
Dominguez noted that suspending oil levies would bring down prices of goods by only 0.03 percentage points in 2022, but its trade off is it will hamper the economic recovery and result in slower growth by 0.4 percentage point in the short run and 0.03 ppt in the long haul.
Dominguez said the estimated loss of P105.9 billion in excise tax and value-addd tax (VAT) collections this year alone already accounts for the possible impact of the Ukraine-Russia conflict on the volume of imported petroleum products.
From 2022 to 2032, the government stands to lose P1.76 trillion worth of excise revenues, which could be better spent on more productive sectors of the economy.