BELOW-TARGET June inflation gives the Bangko Sentral ng Pilipinas (BSP) room to proceed its easing cycle this yr, but unexpected price shocks and the US Federal Reserve’s rate path could affect this outlook.
Finance Secretary and Monetary Board member Ralph G. Recto said in an announcement on Friday that the lower-than-expected June inflation print “provides more room for the BSP to further cut policy rates of interest to assist us further boost the spending power of Filipinos, drive in additional investments, and grow the economy, especially amid rising global uncertainties.”
“With the outlook for inflation remaining favorable and up to date guidance from the BSP leaning dovish, one other rate cut in the approaching months is feasible,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in a note.
Inflation picked as much as 1.4% in June from 1.3% in May, the Philippine Statistics Authority reported on Friday.
Still, this was slower than the three.7% clip in June last yr and was inside the central bank’s 1.1% to 1.9% forecast for the month. This was also slightly below the 1.5% median estimate in a BusinessWorld poll of 17 analysts.
June marked the fourth straight month that inflation settled below the BSP’s 2-4% annual goal.
For the primary six months, headline inflation averaged 1.8%, barely higher than the central bank’s baseline forecast of 1.6%.
BSP Governor Eli M. Remolona, Jr. said on Thursday that the central bank has room for 2 more rate cuts this yr amid moderating inflation and weak economic growth.
The Monetary Board on June 19 delivered a second straight 25-basis-point (bp) cut to bring the policy rate to five.25%. It has now lowered benchmark rates of interest by a cumulative 125 bps because it began its easing cycle in August last yr.
Its remaining policy meetings this yr are scheduled for Aug. 28, Oct. 9, and Dec. 11.
Mr. Neri said the buyer price index is anticipated to remain below 2% in July and August amid easing rice prices.
Rice inflation contracted for the sixth straight month to 14.3% in June, the largest drop since 1995. National Statistician Claire Dennis S. Mapa earlier said he expects rice prices will likely be negative until the tip of the yr.
“Nonetheless, favorable base effects may begin to fade by September, with inflation more likely to return to three% by November. This outlook excludes any supply shocks from the upcoming typhoon season. Inflation may very well be higher if a powerful typhoon hits the agriculture sector,” Mr. Neri said.
Ten to 14 tropical cyclones are expected to enter the Philippine area of responsibility this yr, in response to the Philippine Atmospheric, Geophysical and Astronomical Services Administration.
Mr. Neri said the “biggest risk” to the further monetary easing by the BSP is uncertainty over the US Federal Reserve’s own rate cut cycle.
“It continues to be uncertain whether the Federal Reserve will cut rates this yr, and US inflation data in the subsequent two months will likely be crucial in determining the likelihood of a Fed cut in September,” he said.
“There’s a risk that tariffs haven’t been fully passed on to consumers as many US corporations imported heavily before April to cushion the impact. If inflation within the US picks up, the Fed may delay the speed cuts, which could weaken the peso and limit the BSP’s room to maneuver.”
President Donald J. Trump has demanded immediate rate cuts, but Fed officials have said that with inflation risks rising there isn’t any must ease policy unless the job market begins to weaken in a major way, Reuters reported.
Latest inflation data will likely be released in about two weeks, and Fed Chair Jerome H. Powell has said that if inflation does rise on account of tariffs, it’ll likely begin happening this summer.
The Fed last month left its benchmark overnight rate of interest within the 4.25%-4.5% range, where it has been since December. The choice has drawn fury from Mr. Trump, who feels that recent weak inflation means the central bank must be sharply reducing its policy rate. He has asked Mr. Powell to resign.
Mr. Powell, who has said he intends to serve out a term as chair that ends on May 15, on Tuesday last week reiterated the central bank’s plans to “wait and learn more” about how much tariffs push up on inflation before lowering rates again.
Rate futures show traders are back on board with that vision, with financial market bets pointing to a September begin to rate cuts and a complete of just two quarter-point reductions by yearend, not the three rate cuts that they’d earlier favored.
Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said they expect two more 25-bp cuts from the BSP before the yr ends.
“Our 1.8% full-year average forecast for this stays appropriate, with risks tilted to the downside, and we expect to see this average rate rising to a still-modest 2.6% next yr, comfortably inside the BSP’s 2-to-4% goal range,” he said in note.
For its part, Citigroup, Inc. said inflation is anticipated to stay below the central bank’s goal until the primary quarter of 2026 amid slowing external and domestic demand.
It said it expects the Monetary Board to deliver 25-bp cuts at its August and October reviews. It also sees one other 25-bp reduction on the policy-setting body’s first meeting in 2026, which can likely be held in February.
Citigroup sees headline inflation averaging 1.7% this yr.
“Our forecasted trajectory reflects easing year-on-year disinflation in food on rice prices, largely as base effects kick in from the second half of 2025, whilst prices rise sequentially,” it said.
“We also expect regular or barely higher inflation in services similar to recreation and education. This, nonetheless, may very well be offset by increased disinflation from utilities and fuel prices, especially after the recent pullback in oil prices. Risks could also be tilted to the downside, especially if food inflation continues to fall sequentially.”
Mr. Neri likewise said that inflation will stay manageable so long as Brent crude’s price stays below $85 per barrel.
“The recent ceasefire within the Middle East has led to a decline in oil prices, easing the impact on inflation,” he said. — Aubrey Rose A. Inosante with Reuters