<\/p>\n
By Katherine K. Chan, <\/b>Reporter <\/i><\/p>\n
THE BANGKO SENTRAL ng <\/span>Pilipinas (BSP) could extend its <\/span>tightening cycle because the widening pass-through effects of energy <\/span>shocks stemming from the Middle East war are expected to maintain core inflation elevated, analysts <\/span>said.<\/p>\n Metropolitan Bank and Trust Co. (Metrobank) Chief Economist Nicholas Antonio T. Mapa said the faster pace of core inflation, despite easing headline inflation, supports the BSP\u2019s hawkish but measured policy stance.<\/p>\n \u201cWith headline inflation receding and core inflation heating up, we’re witnessing now what the BSP had been warning us about: <\/span>second-round effects,\u201d Mr. Mapa told <\/span>BusinessWorld<\/i> in a Viber message. <\/span><\/p>\n \u201cEven with the initial energy shock dissipating somewhat, firms have passed on the prices for items not directly related to the primary round of price spikes. And thus, the recent uptick in core inflation represents a broadening increase in prices across the CPI (consumer price index) basket,\u201d he added. <\/span><\/p>\n In June, core inflation accelerated for the sixth month in a row even after the headline print eased for a second straight month.<\/p>\n Core inflation, which discounts volatile food and fuel prices, quickened to 4.4% in June, the fastest pace seen in nearly three years or because the 4.7% in November 2023.<\/span><\/p>\n Core inflation removes the impact of temporary disruptions and shocks on price changes, independent of economic or monetary policy.<\/p>\n For Security Bank Chief Economist Angelo B. Taningco and University of Asia and the Pacific economist Marco Antonio C. Agonia, core inflation will likely stay sticky all year long.<\/span><\/p>\n \u201cCore inflation is seen to stay sticky all year long given\u2026 that recent price hikes made by restaurants, healthcare institutions, personal care providers, and schools is not going to adjust downward immediately provided that global energy prices haven’t gone (down) fully to pre-Iran war levels,\u201d Mr. Taningco told BusinessWorld<\/i> in an e-mail.<\/p>\n Mr. Agonia also noted that underlying price pressures may linger resulting from higher aggregate demand from the federal government\u2019s infrastructure spending catch-up and the upcoming minimum wage hike within the National Capital Region (NCR).<\/p>\n \u201cWhile crude oil has softened recently, pricing and wage adjustments in secondary and tertiary sectors have likely been pushing underlying price pressures,\u201d he told BusinessWorld<\/i>. \u201cThis may increasingly persist for the remainder of the yr, especially because the National Government\u2019s infrastructure spending revival raises aggregate demand and the recent minimum wage adjustment feeds into prices.\u201d<\/p>\n The primary tranche of the P85 every day minimum wage hike in NCR, or P60, can be implemented on July 25. The second tranche of P25 will take effect in January 2027.<\/span><\/p>\n Second-round effects confer with the impact of initial price shocks on the prices of other commodities. This is commonly realized when businesses pass on the burden of upper costs to consumers by raising the costs of commodities and services, including food, utilities, and transport. <\/span><\/p>\n By measuring core inflation, economic managers just like the BSP can determine whether prevailing consumer price movements reflect short-lived disruptions or a long-term trend.<\/p>\n FURTHER TIGHTENING \u201cWith headline falling amidst core inflation increasing, BSP can be correct to hold on with its data-<\/span>driven approach and measured <\/span>pace of tightening,\u201d Mr. Mapa said. <\/span><\/p>\n \u201cWe expect one other 25-bp increase at their next meeting. If headline inflation continues to fade and fall quickly, the following rate hike could also be BSP\u2019s last for the yr,\u201d he added.<\/p>\n Nevertheless, Mr. Taningco said there could potentially be more hikes if price pressures worsen resulting from a re-escalation of the Middle East war, the looming El Ni\u00f1o phenomenon, and better minimum wage and transport fare hikes.\u00a0 \u00a0<\/span><\/span><\/p>\n Under its inflation-targeting framework, the BSP uses monetary policy tools to stop inflation spillovers and keep inflation expectations anchored, particularly by tempering the second-order effects of price shocks on wage- and price-setting behavior.<\/p>\n This includes the central bank raising its key rate of interest to make borrowing dearer, which helps cool down inflation through lowering aggregate demand by dampening spending.<\/p>\n At its June 18 meeting, the Monetary Board lifted its benchmark rate for a second straight meeting by 25 bps to 4.75%. This brought its total hikes since April to 50 bps.<\/p>\n BSP Governor Eli M. Remolona, Jr. has left the door open for an additional 25-bp hike, with expectations of an economic rebound by the second half giving them space to tighten further.<\/p>\n The central bank has also remained hawkish on the back of still \u201cstrong\u201d inflationary pressures, evidenced by the heated core inflation last month.<\/p>\n The BSP noted that it would proceed to pursue price stability and hope to bring inflation back to their 3% goal through monetary policy rate adjustments.<\/p>\n Meanwhile, Nomura Global Markets Research slashed its Philippine inflation forecast to five.1% from 5.5% for 2026 and to three.1% from 3.2% for 2027 because it noted that the headline print has likely peaked.<\/p>\n Nevertheless, expectations of heated core inflation should still warrant a further 50 bps in hikes to bring the important thing policy rate to five.25% by yearend.<\/p>\n \u201cWe lowered our CPI inflation forecasts resulting from our latest oil price assumptions. By way of the trajectory, we imagine headline inflation has already peaked, but core inflation has not, reflecting second-round effects,\u201d Nomura research analysts Euben Paracuelles and Nabila Amani said in a report.<\/p>\n EL NI\u00d1O RISKS \u201cThe Philippines and India are most exposed to an El Ni\u00f1o shock, followed by Indonesia and Thailand,\u201d it said. \u201c(The) Philippines is especially vulnerable to higher rice prices: it’s a net food importer (2% of gross domestic product), and rice accounts for 8.9% of its CPI basket.\u201d<\/p>\n Food and nonalcoholic beverages account for 37.75% of the country\u2019s total basket of products, with rice making up around 9%.<\/p>\n The state weather bureau earlier said emerging El Ni\u00f1o conditions within the tropical Pacific has an 80% probability to turn into a full-fledged El Ni\u00f1o, with the Philippines prone to encounter a \u201cstrong\u201d El Ni\u00f1o season between September and November, and a \u201cvery strong\u201d one between October and January next yr.<\/p>\n In response to the Department of Agriculture, the looming \u201csuper El Ni\u00f1o\u201d can bring high temperatures that may harm crops, livestock, fisheries and aquaculture, potentially slashing agricultural output by 20%-30%.<\/p>\n \u201cLower oil and fertilizer prices may also help keep the lid on food inflation, although with 2026 an El Ni\u00f1o yr, medium-term risks to food inflation remain,\u201d Nomura also said.<\/p>\n For Mr. Agonia\u2019s part, the Philippines risks facing a fresh round of supply shock and from the upcoming \u201csuper El Ni\u00f1o,\u201d which could weigh on the associated fee of other commodities.<\/p>\n \u201cThe looming El Ni\u00f1o threat may additionally invite one other supply shock <\/span>that would ripple over again through <\/span>differ<\/span>ent industries,\u201d he noted.<\/span><\/p>\n Mr. Agonia said the central bank may tighten by one other 50 bps before standing pat in 2027, with pressures from the El Ni\u00f1o event and worse second-order effects to open room for more hikes. <\/span><\/p>\n \u201cBSP could also be more aggressive than this if second-round effects and the El Ni\u00f1o phenomenon prove to materially alter the inflation outlook,\u201d he said.<\/p>\n \u201cNevertheless, more rate hikes may disproportionately weaken medium-term economic growth prospects. As such, we expect BSP will tighten by 50 bps more this yr while occurring pause for 2027.\u201d<\/p>\n The Monetary Board is scheduled to carry three more regular policy reviews this yr on Aug. 27, Oct. 22, and Dec. 17.<\/p>\n<\/p><\/div>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Vegetables are on display at a market in Quezon City, May 22, 2026. \u2014 PHILIPPINE STAR\/MIGUEL DE GUZMAN By Katherine K. Chan, Reporter THE BANGKO SENTRAL ng Pilipinas (BSP) could extend its tightening cycle because the widening pass-through effects of energy shocks stemming from the Middle East war are expected to maintain core inflation elevated, […]<\/p>\n","protected":false},"author":1,"featured_media":365388,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[17106,6012,17105,3846,13133,51924],"class_list":["post-365387","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-bsp","tag-core","tag-inflation","tag-path","tag-sticky","tag-tightening"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t
<\/b>Metrobank\u2019s Mr. Mapa and Security Bank\u2019s Mr. Taningco expect the BSP to deliver a final 25-basis-point (bp) hike at its next <\/span>policy review in August to cap its tightening cycle this yr.<\/p>\n
<\/b>The Philippines, alongside India, stands as probably the most vulnerable to the impact of El Ni\u00f1o given its position as a net food importer and the heavy weight of food in its CPI basket, in keeping with Nomura.<\/p>\n