Inflation picks up on higher tobacco, alcohol prices

MANILA, Philippines (2nd UPDATE) - Annual inflation rose at its fastest pace in 3 months in January as tobacco and alcohol prices grew by double digits following the implementation of higher "sin" taxes.

Data from the National Statistics Office (NSO) showed inflation, or the rise in the cost of goods and services, picked up to 3% in January from 2.9% in December 2012.

The January figure was the highest since October 2012's 3.1%. It was however lower than the 4% posted in the same month in 2012.

"With the implementation of Republic Act 10351 or Sin Tax Reform Act of 2012, prices of alcoholic beverages and tobacco escalated in all the regions," the NSO said in a statement.

The alcoholic beverage and tobacco index registered a double-digit growth of 17.3% in January, against 5.1% in December 2012.

Slight increases meanwhile were noted in the indices of food; furnishing, household equipment and routine maintenance; health; and communication, at 2.3%, 4.9%, 3.3% and 0.5% in January, respectively, versus December's 2.2%, 4.8%, 3.1% and 0.4%.

Excluding volatile food and energy items, core inflation accelerated to 3.6% in January from 3.3% in December. Inflation slowed to 2.4% in the National Capital Region, and increased to 3.3% in areas outside NCR.

Higher prices

Banking giant HSBC said the increase in inflation in January will persist in the coming months on the back of global recovery and higher crude oil prices. 

Global growth and higher inflation will lead to a pick-up in food and transportation costs - two heavily-weighted indices in the Philippines. HSBC said this makes February inflation the "one to watch."

With this inflation outlook, HSBC sees the Monetary Board holding its key policy rate at 3.5% in its next meeting. 

"The implementation of the sin tax drove up alcohol and tobacco prices, which lifted core inflation. While the impact is a one-off, still-high domestic demand, an unfavorable base effect, and strong signs of a global recovery suggests that upside risks to headline inflation are high," HSBC said. - Rappler.com