By Katherine K. Chan, A reporter
BANGKO SENTRAL ng Pilipinas (BSP) can expand strengthening the cycle as it expands energy effects The shock from the war in the Middle East is expected to last core inflation rose, analysts said said.
Chief Economist at Metropolitan Bank and Trust Co. (Metrobank) Nicholas Antonio T. Mapa said the pace of core inflation, despite slowing inflation, supports the BSP’s hawkish but moderate policy.
“As the rate of inflation recedes and the rate of inflation declines, we are now seeing what the BSP has been warning us about: the results of the second round,” said Mr. Mapa BusinessWorld in a Viber message.
“Even if the shock of the initial power decreases a little, firms have passed on the costs of indirect items related to the first round of inflation. Therefore, the recent increase in core inflation indicates an increase in prices in the entire basket of CPI (consumer price index),” he added.
In June, core inflation accelerated for the sixth month in a row even after headline inflation eased for the second straight month.
Core inflation, which strips out food and fuel prices, rose to 4.4% in June, the fastest pace seen in nearly three years or from 4.7% in November 2023.
Core inflation removes the impact of temporary disturbances and shocks to price changes, independent of economic or monetary policy.
According to Security Bank Chief Economist Angelo B. Taningco and University of Asia and the Pacific economist Marco Antonio C. Agonia, core inflation is likely. stay attached all year round.
“Recent price hikes by restaurants, health centers, personal care providers, and schools will not slow down any time soon given that electricity prices have not fully (reduced) from pre-Iran war levels,” said Mr. Taningco told BusinessWorld by email.
Mr. Agonia also noted that downward pressure on prices may continue due to higher demand for government infrastructure spending and the upcoming increase in minimum wages in the National Capital Region (NCR).
“While crude oil prices have declined recently, price and wage adjustments in the downstream and upstream sectors are likely to be pressures,” he said. BusinessWorld. “This is likely to continue throughout the year, especially as the National Government’s renewed spending on infrastructure raises overall demand and the recent small wage adjustment changes affect prices.”
The first phase of the P85 daily minimum wage increase in the NCR, or P60, will be implemented on July 25. The second phase of P25 will take effect in January 2027.
The results of the second round refer to the impact of the first price shock on the prices of other goods. This is often seen when businesses pass on the burden of higher costs to consumers by raising the prices of goods and services, including food, utilities, and transportation.
By measuring core inflation, economic managers such as the BSP can determine whether current consumer price movements indicate a temporary disturbance or a long-term trend.
ADDITIONAL STRENGTH
Mr. Map of Metrobank and Mr. Security Bank officials expect the BSP to deliver the final 25-ba.the sis-point (bp) rises next policy review in August to meet its tightening cycle this year.
“As the headline eases amid rising core inflation, the BSP will be right to continue its data-conducted and measured method the pace of strengthening,” said Mr.
“We expect another 25-bp hike at their next meeting. If headline inflation continues to fade and decline rapidly, the next rate hike could be the BSP’s last for the year,” he added.
However, Mr. Taningco said there could be further increases if price pressures worsen due to a resurgence of conflict in the Middle East, a looming El Niño event, and increases in minimum wages and fares.
Under its inflation management framework, the BSP uses monetary policy tools to prevent inflation and keep inflation expectations stable, mainly by mitigating the second-order effects of price shocks on income behavior and price setting.
This includes the central bank raising key interest rates to make borrowing more expensive, which helps reduce inflation by reducing aggregate demand by reducing spending.
In its June 18 meeting, the Monetary Board raised its benchmark rate for the second consecutive meeting by 25 bps to 4.75%. This brought its total increase since April to 50 bps.
BSP Governor Eli M. Remolona, Jr. left the door open for another 25-bp hike, with the economy expected to bounce back in the second half giving them room to tighten further.
The central bank also remained hawkish after “strong” inflationary pressures, evidenced by the hot inflation last month.
The BSP noted that it will continue to pursue price stability and hopes to bring inflation back to its 3% target by adjusting the monetary policy rate.
Meanwhile, Nomura Global Markets Research lowered its inflation forecast for the Philippines to 5.1% from 5.5% in 2026 to 3.1% from 3.2% in 2027 as it noted that headline printing is likely to increase significantly.
However, tepid inflation expectations could still warrant a 50 bps hike to bring the key policy rate to 5.25% by the end of the year.
“We have lowered our CPI inflation forecasts due to our latest oil price projections. In terms of trajectory, we believe that core inflation has already peaked, but core inflation has not, reflecting secondary effects,” said Nomura research analysts Euben Paracuelles and Nabila Amani in a report.
EL NIÑO IS DANGEROUS
The Philippines, along with India, stands as the most vulnerable to the impact of El Niño given its position as a food importer and the heavy weight of food in its CPI basket, according to Nomura.
“The Philippines and India are facing the shock of El Niño, followed by Indonesia and Thailand,” said the newspaper. “(The Philippines) is most vulnerable to high rice prices: it imports food (2% of gross domestic product), and rice accounts for 8.9% of the CPI basket.”
Food and alcoholic beverages account for 37.75% of the country’s gross domestic product, while rice accounts for about 9%.
The state weather bureau previously said that growing El Niño conditions in the tropical Pacific have an 80% chance of developing into a full El Niño, while the Philippines is likely to experience a “strong” El Niño season between September and November, and a “very strong” one between October and January next year.
According to the Department of Agriculture, the coming “super El Niño” could bring high temperatures that will damage crops, livestock, fisheries and aquatic animals, potentially reducing agricultural production by 20%-30%.
“Lower oil and fertilizer prices could also help keep a lid on food costs, although with 2026 being an El Niño year, medium-term risks of food inflation remain,” Nomura said.
On the part of Mr. Agonia, the Philippines is at risk of facing a new shock and the coming “big El Niño”, which can balance the cost of other things.
“The impending El Niño threat may cause another shock to the supply chain that could go on and on they are differentindustries,” he said.
Mr. Agonia said the central bank could tighten by another 50 bps before pausing in 2027, with pressures from the El Niño event and the worst second-order effects opening the way for further hikes.
“The BSP may be more aggressive than this if the results of the second round and the El Niño situation show that it is materially changing the inflation outlook,” he said.
“However, more rate hikes may equally weaken medium-term economic growth prospects. Therefore, we think the BSP will tighten by 50 bps more this year while pausing in 2027.”
The Monetary Board is scheduled to hold three additional policy reviews this year on Aug. 27, Oct. 22, and Dec. 17.
