Downward Philippine inflation in the near term would be slightly offset by the new law imposing 12-percent value added tax (VAT) on digital services, Singapore-based United Overseas Bank (UOB) said.
In an Oct. 4 report, UOB senior economist Julia Goh and economist Loke Siew Ting noted that there is a three-month period to come out with the implementing guidelines of Republic Act (RA) No. 12023 signed by President Ferdinand Marcos Jr. last Oct. 2.
Also, RA 12023's guidelines could be implemented within another 120-day period.
"As such, the impact of the digital tax on consumer price inflation will only be felt as early as in the first quarter of 2025 while the pass-through effects remain unclear at this juncture," UOB said.
This VAT slapped on foreign digital service providers is considered by UOB to be an inflation consideration for Philippine policymakers, alongside the risk emanating from escalating tensions in the Middle East.
"If the conflicts in the Middle East intensify ... with widespread destruction particularly on oil facilities in both countries [Iran and Israel] over the coming months, it will result in a further spike in global oil prices and subsequently fuel and electricity prices in the Philippines," UOB warned.
Despite these upside inflation risks, UOB slashed its inflation forecasts to three percent for 2024 and 2.8 percent for next year, from both 3.5 percent previously.
This mainly came on the back of lower-than-expected headline inflation since July, including September's over four-year low of 1.9 percent.
"We believe that an expected appreciation in peso in the remaining months of this year and across 2025, together with the ongoing favorable base effects and non-monetary intervention measures by the government as well as the ebbing impact of higher electricity charges between July and September 2024, will continue to support the disinflation trend as the year progresses and into 2025," UOB said.
Meanwhile, the think tank Capital Economics is not worried about global oil price shocks possibly impacting Asian economies.
"The main channel through which economies in Asia are likely to be affected by the worsening crisis in the Middle East is through rising oil prices, which could cause inflation to rise. However, while Brent crude has risen by 10 percent over the past week, at $78 per barrel, it is still consistent with energy price inflation across the region remaining negative. Even at $100 per barrel, energy price inflation would still be low," Capital Economics senior Asia economist Gareth Leather and assistant economist Harry Chambers said in their Oct. 4 report.
"Our forecast is that oil prices will drop back over the coming months due to a combination of weakening demand and ample supply in the broader oil market. This, combined with weak economic growth and falling food price inflation, should ensure that inflation across the region remains low," Capital Economics said.