THE two simultaneous inflation shocks hounding the Philippines-the larger-than-expected wage hike and renewed external pressures from volatile oil markets and a weaker peso, could delay the return of inflation to target, a former deputy governor of the Bangko Sentral ng Pilipinas (BSP) warned.
‘Together, these could delay the return of inflation to target, underscoring the importance of maintaining credible monetary policy and keeping inflation expectations well anchored while addressing the structural sources of inflation through broader government action,’ Former BSP Deputy Governor Diwa Guinigundo said in a report on Wednesday.
Just as the central bank began re-evaluating its inflation outlook for the next two years in light of the ‘unexpectedly’ large minimum wage increase in the National Capital Region (NCR), Guinigundo pointed out that renewed geopolitical tensions in the Middle East presented another source of inflationary risk: a weaker peso driven by ‘heightened’ global uncertainty.
‘Taken separately, each development would already warrant close monitoring,’ Guinigundo said.
As these recent developments occur simultaneously, however, the former BSP deputy governor said they present the central bank with a ‘more complicated’ policy environment, in which domestic and external inflationary pressures could ‘reinforce one another and delay the return of inflation to target.’
In an earlier interview with reporters, BSP Governor Eli M. Remolona Jr. said the recently approved P85 daily minimum wage hike for Metro Manila workers may have ‘significant’ inflationary pressures.
However, he said the ‘sensitivities’ of the recent wage adjustment may have to be further looked into.
‘Significant siya pero medyo hindi ko alam ‘yung sensitivities. Titignan pa namin. We’ll have to do the numbers. This is unusual,’ the central bank chief told reporters two weeks ago.
In its latest Monetary Policy Report, the central bank said its wage increase assumption for 2026 was 6.7 percent which is way below the actual minimum wage hike or the P85 approved by the NCR wage board-equivalent to a 12.23-percent increase.
According to Guinigundo, given that the NCR accounts for the largest share of the country’s economic output and formal employment, developments in its labor market ‘inevitably’ carry national macroeconomic implications.
The former BSP deputy governor also pointed out that BSP’s preliminary estimate suggests that every additional peso in minimum wage raises inflation by about 0.0047 percentage point.
‘On that basis, the full P85 adjustment could add roughly 0.4 percentage points to inflation through its direct or first-round effects alone,’ Guinigundo pointed out.
The greater concern, however, lies beyond these ‘immediate effects,’ the former BSP deputy governor said.
‘Wage adjustments in other regions, higher production and transport costs, and possible increases in food and service prices could generate second-round e?ects that become considerably more persistent,’ Guinigundo stressed.
More importantly, he said if households and firms begin to expect permanently higher inflation, then wage and price adjustments may become ‘mutually reinforcing, creating the very wage-price spiral that central banks seek to avoid.’
According to the former BSP deputy governor, these concerns arise at a time when inflation has already ‘become more entrenched.’
Citing actual inflation figures, he said headline inflation averaged 4.8 percent during the first half of 2026, significantly above the 1.8 percent recorded during the same period last year.
Meanwhile, inflation for the bottom 30 percent of income households averaged an even higher 5.5 percent, underscoring the ‘disproportionate burden’ borne by lower-income families.
Both figures, he pointed out, remain well above the government’s inflation target of 3 percent, plus or minus one percentage point.
At the same time, core inflation, which excludes volatile food and energy prices, has remained elevated, suggesting that price pressures are becoming ‘increasingly’ broad-based rather than confined to a few supply-driven items, Guinigundo pointed out.
On top of the larger-than-expected wage hike in NCR, the former BSP deputy governor said the domestic inflation outlook is ‘further complicated’ by emerging pressures on the exchange rate and higher global oil prices.
‘The policy challenge confronting the BSP is therefore no longer confined to a single inflation source. It must now manage the interaction between stronger domestic cost pressures arising from wage adjustments and imported inflation transmitted through exchange rate depreciation and higher global oil prices,’ Guinigundo said.
‘These forces may reinforce one another, making inflation more persistent and more di?cult to bring back within target,’ he also noted.
Should these shocks intensify or prove ‘more prolonged’ than currently anticipated, Guinigundo said the return of inflation to the BSP’s target range could be pushed ‘even further into the future.’
‘The consequences would extend beyond price stability. Persistent inflation erodes real household incomes, weakens consumption, which accounts for more than three-fourths of Philippine GDP, and ultimately restrains broader economic growth,’ the former BSP deputy governor emphasized further.
During the briefing on the monetary policy stance of the BSP last June 18, Zeno Ronald R. Abenoja, BSP Deputy Governor for the Monetary and Economics Sector unveiled BSP’s inflation forecast estimates: For 2026, he said it will be an average of 6.4 percent.
For 2027, he said inflation would be about 4.5 percent while for 2028, he said it could hover around 3.1 percent.