Economic expansion puts upward pressure on prices

FILE: Dominguez said the tax reform law increased the purchasing power of consumers, noting the increase in profits of fast food giants. (Photo courtesy of Sec. Martin Andanar via PNA)

MANILA — Finance Secretary Carlos Dominguez III on Friday said the country’s higher-than-expected inflation rate could have been caused by an expanding economy and robust consumer demand.

“While slightly elevated, the inflation rate during the first six months of the year is understandable. Economies expanding at a fast clip tend to put pressure on supply. This is particularly true of our economic performance,” he said during the pre-State-of-the-Nation Address (SONA) forum.

Dominguez said the tax reform law increased the purchasing power of consumers, noting the increase in profits of fast food giants.

“I am sure they are buying more gadgets, foods. In fact, restaurant inflation is going up because people are going more to restaurants,” he explained.

The finance chief said the massive importation of capital goods needed for the “Build, Build, Build” infrastructure program also increased the country’s trade deficit and weakened the peso.

Dominguez noted the rice situation also pushed prices to abnormal levels.

“None of these factors are permanent infirmities. But without the tax reform and the infrastructure program that it is funding, we will continue to suffer from high cost of production and transportation. With the tax reform and better infrastructure, the road to higher productivity, and thus lower and stable inflation is within reach,” he said.

Inflation rate accelerated to a five-year high of 5.2 percent in June 2018.

Last month’s figure brought average inflation rate during the first six months of the year to 4.

3 percent, above the target range of 2 to 4 percent for the year but still within the Cabinet-level Development Budget Coordination Committee’s forecast of 4.0 to 4.5 percent.

“We are confident that with the relaxation of oil prices in the global market, the consolidation of the peso’s exchange rate, and the normalization of rice supply, we can pull back the inflation rate to within target range,” Dominguez added.