STILL BROADENING PRICE pressures despite slowing headline inflation may warrant two more consecutive rate hikes by the Bangko Sentral ng Pilipinas (BSP), Deutsche Bank Research said.
In a report dated July 10, the Germany-based think tank said it still sees the central bank delivering a 25-basis-point (bp) rate hike at each of its next two policy meetings on Aug. 27 and Oct. 22.
In June, headline inflation eased to a three-month low of 6.4%, while core inflation, which strips out volatile food and fuel prices, quickened for a sixth straight month to a near three-year high of 4.4%.
“Measures of underlying inflation show that the strategy of broadening price pressures remains to be underway,” Deutsche Bank Research economist Junjie Huang said in a separate report released on July 7. “Our monetary policy outlook stays unchanged as we expect this process to proceed in the approaching months.”
If his projections hold true, the BSP’s key policy rate will climb to five.25% by October. This will likely be the best in one-and-a-half years or for the reason that 5.5% in April last yr and likewise match the speed set in June 2025.
The Monetary Board began its tightening cycle with a quarter-point hike in April and later delivered one other 25-bp increase in June resulting from increasing inflationary pressures from the energy shocks triggered by the Middle East war.
This has to this point brought the benchmark rate to 4.75%, with monetary officials leaving the door open for further measured hikes.
BSP Governor Eli M. Remolona, Jr. has said that they still have space for a 3rd straight 25-bp rate hike as he sees the economy gaining some momentum by the second half of the yr.
The central bank has also reiterated its hawkish signals, noting that they might proceed to pursue further monetary motion to bring inflation back to their 3% goal.
Deutsche Bank now sees the headline print settling at 6% this yr, slower than its previous 6.2% estimate. Nevertheless, it left its inflation forecast for next yr unchanged at 4.1%.
“While headline inflation has come down prior to now two months, second-round effects are still working their way through the economy, in our view, as seen within the measures of underlying inflation,” Mr. Huang said.
He also flagged price risks from the looming El Niño event amid lingering pressures on food inflation, in addition to from the peso’s fragile standing versus the dollar.
“Furthermore, we imagine that the upside risk from El Niño and food price inflation has not been fully priced in, while USD (US dollar) strength or rates repricing could keep the peso and imported cost inflation under pressure,” he added.
The Philippines may encounter “strong” El Niño conditions by September to November, with a potentially stronger phenomenon to come back between October and January next yr, in line with the state weather bureau.
If realized, the local agricultural sector will likely take successful from extreme hot weather, which could push food prices up nationwide.
Also, the continuing war between the US, Israel, and Iran continues to weigh on the peso, averaging above the P61-per-dollar mark for 2 straight months or since May.
WAGE HIKE IMPACT
In a separate commentary, Metropolitan Bank and Trust Co. (Metrobank) noted that the upcoming minimum wage hike could also add pressures to the country’s inflation, growth and employment.
Metrobank Research Officer Marian Monette Florendo-Obias said this record-high hike could stoke inflation via second-round effects as businesses may opt to extend their prices to fulfill the brand new minimum wage.
“Higher minimum wages raise labor costs for businesses, particularly for labor-intensive firms within the services sector. As wage expenses rise, profits could also be squeezed and businesses could also be forced to pass on a part of the prices to consumers through higher prices,” she said.
“This can end in higher inflation for goods and services heavily depending on labor inputs. It’s then reasonable to expect upward pressure on overall inflation figures,” she added.
In response to Ms. Florendo-Obias, rising prices could also dampen demand and result in a rather weaker job market as businesses cut employees’ hours or reduce hiring to offset increasing labor costs.
“Now this might have an overall negative impact on economic growth, with the federal government estimating that a P100 nationwide minimum wage increase could reduce GDP (gross domestic product) growth by around 0.4 percentage point,” she added.
Philippine GDP growth slumped to a post-pandemic low of two.8% in the primary quarter of the yr.
Nevertheless, all these spillover effects only pose minimal threat to the economy because the wage hike is ready to affect merely 2% of the country’s labor force, Ms. Florendo-Obias noted.
“Inflation may rise; employment numbers may take successful; and growth may decelerate,” she said. “Nevertheless, the general impact on the broader economy is anticipated to stay manageable, particularly if accompanied by complementary government policies.”
The Department of Labor and Employment announced late last month that it can implement a dual tranche P85 increase within the minimum wage within the National Capital Region (NCR).
Starting July 25, the minimum wage within the NCR will increase by P60 to P755 for nonagricultural employees and to P718 for agricultural employees and employees of retail, service, and small manufacturing establishments.
The second tranche of the wage hike or P25 will take effect in January 2027. — Katherine K. Chan