Philippine inflation likely cooled to 6% in August — poll

By Katherine K. Chan, Reporter

HEADLINE INFLATION may have eased to a five-month low in August but stayed above the central bank’s target as the bad weather drove up food prices and transport costs remained elevated year on year, analysts said.

The median estimate of 20 analysts polled by BusinessWorld showed inflation, as measured by the consumer price index, likely eased to 6% in August from 6.2% in July but accelerated from 1.5% a year ago.

If realized, the August headline print would cool to its slowest pace in five months or since the 4.1% in March.

However, August would mark the sixth consecutive month that inflation breached the Bangko Sentral ng Pilipinas’ (BSP) 3% target.

At 6%, the Philippines’ eight-month average inflation would reach 5.1%.

The central bank expects August’s headline inflation to settle between 5.5% and 6.5%, with weather-sensitive food prices and still high oil costs emerging as key risks.

The Philippine Statistics Authority will release the August inflation report on Sept. 4.

“Inflation in August was partly driven by higher prices of food items, such as rice, fish, fruits, and vegetables as a consequence of inclement weather given heavy rainfall and flooding as well as high transport inflation due to elevated oil prices,” Security Bank Corp. Chief Economist Angelo B. Taningco said in an e-mail.

Four tropical cyclones battered the Philippines in August, which also intensified the southwest monsoon, bringing heavy rains and severe flooding across parts of the country.

“Enhanced monsoon rains also affected logistics and distribution channels, resulting in localized supply constraints that likely pushed up food prices during the month,” Union Bank of the Philippines (UnionBank) Chief Economist Ruben Carlo O. Asuncion said via e-mail.

In the second half of August, regular milled rice was sold at an average of P49.61 per kilo, rising by 22.95% year on year from P40.35 and by 0.63% from P49.3 per kilo a month ago.

Meanwhile, the per-kilo price of well-milled rice climbed to P56.29 during the period, up by 19.59% from P47.07 last year and by 1.08% month on month from P55.69.

Still, lower oil and utility costs during the month may have softened the headline print, according to University of Asia and the Pacific Economist Marco Antonio C. Agonia.

However, S&P Global Market Intelligence Principal Economist Harumi Taguchi noted that energy prices remained elevated in August, with continued spillover to other commodities adding inflationary pressures.

Based on Department of Energy data, gasoline prices were trimmed by as much as P2.20 per liter in August, while kerosene prices were cut by up to P0.99 per liter. The cost of diesel, on the other hand, increased by as much as P0.61 per liter.

However, retail fuel prices during the month remained above the prewar range of P50 to P60 per liter.

At end-August, gasoline costs between P64.20 and P96.57 per liter, diesel at P77 to P100.84 per liter, and kerosene at P99.10 to P133.32 per liter.

Manila Electric Co. likewise cut electricity rates by 4.28 centavos per kilowatt-hour (kWh) to P14.7833 from P14.8261 per kWh. This was equivalent to a P9 reduction in the total electricity bill of households consuming 200 kWh monthly.

“However, the impact of peso depreciation has eased slightly as the currency has traded within a relatively narrow range, while low base effects from food prices a year earlier are also likely to help soften headline inflation,” Ms. Taguchi added.

Still, the local unit’s plunge to back-to-back record lows in August may have raised import-related inflation, UnionBank’s Mr. Asuncion noted.

“(R)enewed oil price pressures linked to Middle East uncertainties and the peso’s depreciation toward the P62-per-US$ level contributed to higher import, transport, and production costs,” he said.

The peso touched the P60-a-dollar level several times this month after weeks of trading above the P61 handle.

However, Bankers Association of the Philippines data showed the local unit tumbled by 37.7 centavos to a new all-time low finish of P62.265 against the greenback on Friday, breaking its previous record of P61.888 on Thursday. It has weakened by P3.475 or 5.91% from its P58.79 close on Dec. 29, 2025.

It also slumped to as much as P62.27 during the late Friday session, marking its worst intraday showing in history.

On the other hand, several analysts said the headline clip is likely to have steadied at 6.2% in August.

“There remain significant upside pressures from fuel, food — particularly rice — weather-related supply disruptions and the weaker peso,” Marites M. Tiongco, a professor at the De La Salle University Carlos L. Tiu School of Economics, said in a Viber message.

“However, these are partly offset by lower electricity rates and some moderation in underlying inflation. I therefore expect inflation to remain elevated rather than accelerate sharply in August,” she added.

POLICY PATH AHEAD
With inflation easing in August but still likely to peak anew later this year, analysts are now split on the BSP’s next policy move.

Patrick M. Ella, an economist at Sun Life Investment Management and Trust Corp., said the central bank may pause until yearend before potentially tightening again by early 2027.

“For BSP, based on the recent press conference on the August meeting, I think they will pause in October and December but will likely resume a hike in the first quarter of 2027 —  subject to inflation path and other data points,” he said via e-mail.

For China Banking Corp. Chief Economist Domini S. Velasquez, the BSP’s tightening cycle may have ended this month even as inflation risks remain from high oil prices, the El Niño’s impact on agricultural output, and potential minimum wage hike.

“However, we believe the BSP has delivered its final rate cut. Inflation is likely to remain elevated for the rest of the year and could accelerate further in Q4,” she said in an e-mail.

“Given that much of the remaining inflationary pressure is supply-driven, further monetary tightening would have limited effect in bringing inflation back to the BSP’s 2-4% target band this year,” she added.

Last week, the Monetary Board tightened for a third straight meeting in a preemptive move to contain inflation risks from the looming “Super El Niño,” potential wage hikes, and volatile global oil prices.

The BSP raised its key policy rate by 25 basis points (bps) to an over one-year high of 5%, bringing its cumulative hikes to 75 bps since April.

BSP Governor Eli M. Remolona, Jr. said they hope they won’t have to hike more but left the door open to tighten further as they need to bring inflation closer to their 3% target.

The central bank noted that inflation will likely peak in the fourth quarter this year as the impact of the super El Niño feeds into food prices. It likewise flagged risks from fluctuating oil prices and the now-suspended wage hike.

Latest BSP projections show inflation could breach its target for three straight years — 6.1% this year, 5.4% in 2027, and 3.3% in 2028.

Meanwhile, Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. expects the BSP to maintain a hawkish stance, but cautioned that monetary policy should not overcompensate to address economic woes caused by governance issues.

“Inflation will likely remain a challenge for the rest of the year, and BSP may have to keep its tightening bias,” he said in a Viber message. “Improving governance is key to our country’s growth recovery and not really about keeping interest rates below inflation.

“After a serious lapse in the last four years, the Legislative and Executive branches need to step up big time to restore confidence and improve our country’s potential output. All sorts of serious negative side effects will emerge if BSP tries to compensate for inadequate delivery of public sector services and reforms,” Mr. Neri added.

The Monetary Board will hold two more policy reviews this year on Oct. 22 and Dec. 17.