High inflation threatens Philippines’ poverty reduction gains

By Justine Irish D. Tabile, Senior Reporter

PERSISTENTLY high inflation could reverse the Philippines’ recent gains in poverty reduction by eroding the purchasing power of poor and low-income households, the Department of Economy, Planning, and Development (DEPDev) said.

Preliminary estimates showed that poverty incidence among Filipinos sharply dropped to 9.7% in 2025 from 18.1% in 2021, DEPDev Secretary Arsenio M. Balisacan said on Monday.

“These gains reflect not only the recovery of incomes and employment but also the sustained implementation of social protection programs,” he said during economic managers’ briefing on the 2027 National Expenditure Program at the House of Representatives.

“However, these hard-won gains remain vulnerable particularly to high inflation, which disproportionately affects poor and low-income households,” he said.

Headline inflation accelerated to 4.1% in March from 2.4% in February and peaked at 7.2% in April as the Middle East conflict sent global crude oil prices surging. It has since eased for three straight months, reaching 6.2% in July but above the Bangko Sentral ng Pilipinas’ (BSP) 3% target.

Year-to-date, inflation averaged 5%, still below the BSP’s 6.4% estimate for 2026.

“High inflation erodes household purchasing power, disproportionately affecting poor and low-income families,” he said. “If inflation remains elevated, it could slow or even reverse our recent gains in poverty reduction.”

Mr. Balisacan said the sharp slowdown in economic growth posed another threat to the country’s recent development gains.

“Following the pandemic, economic growth averaged 5.8% from 2022 to 2025. However, momentum weakened sharply beginning in the second half of 2025, with growth slowing further to 2.6% in the first half of this year,” he said.

“This sharp deceleration defines our immediate challenge: to recover growth without losing the important development gains already achieved,” he added.

Mr. Balisacan cited the Philippines’ reclassification as an upper-middle income status after nearly four decades as a lower-middle income economy.

“Reaching upper-middle income status is an important achievement, but it is not an end in itself.

The greater challenge is to translate this progress into better jobs, higher incomes, and improved living standards for Filipinos,” he added.

The recent economic slowdown has also affected the labor market, Mr. Balisacan said. He noted economic expansion between the first half of 2022 and the first half of 2026 generated four million net jobs.

“However, as growth slowed, total employment declined by 166,000 in the past year. The unemployment rate also rose to 4.2% in June from 3.1% a year earlier,” he said.

“These recent developments underscore the urgency of restoring economic momentum and generating more and better quality jobs,” he added.

Protecting the country’s progress in reducing poverty would require addressing both emerging risks and the economy’s persistent structural constraints, Mr. Balisacan said.

“Beyond immediate concerns of slower growth and elevated inflation, persistent structural constraints continue to limit the economy’s productive capacity and resilience,” he added.

These constraints include the economy’s heavy reliance on household consumption on the demand side, and on services on the production side of the economy.

“The experience of successful economies shows that sustained progress requires mobilizing other sources of growth, notably investment, exports, agriculture, and industry,” he said.

“We must therefore broaden the source of growth by strengthening investment and exports, while revitalizing agriculture. The urgency of this task is evident from our performance relative to our ASEAN peers,” he said, adding that other constraints include weak infrastructure and productivity growth.

The Philippine economy is expected to grow by 3.5-4.5% this year and by 5-6% from 2027 onward.

“Achieving the growth targets will require us to manage significant domestic and external risks,” Mr. Balisacan said.

Domestic risks include tepid consumer and business sentiment, underspending and delays in project implementation, and an intensifying El Niño.

External risks include unresolved Middle East tensions, global trade policy uncertainty, and volatile global capital flows amid heightened uncertainty.