WHILE analysts expect the general increase in the prices of goods and services to have slightly eased in August, they warn inflation remains elevated and its rate and pace vulnerable to shocks from El Niño and the Middle East conflict.
In separate commentaries, analysts’ estimates pointed to lower headline inflation for August compared to the 6.2 percent in July while one economist said it likely remained unchanged as the recent monsoon rains may have disrupted the supply of agricultural products, putting upward pressure on food prices.
Domini S. Velasquez, Group Chief Economist at China Banking Corp. (Chinabank), said ‘headline inflation likely held at 6.2 percent in August, unchanged from July.’
‘Price pressures were likely driven by higher prices of key food items, including rice, corn, fish, vegetables, fruits, eggs, and cooking oil, with more than two weeks of steady rainfall disrupting agricultural supply and pushing up prices of some food items,’ Velasquez said.
She said higher fuel and LPG prices amid persistent Middle East tensions also added to price pressures.
However, Velasquez said these were ‘partly offset’ by lower electricity rates in Meralco-serviced areas and softer meat prices.
Meanwhile, Velasquez said core inflation likely eased for a second straight month to 4 percent from 4.2 percent in July, suggesting that ‘underlying price pressures are gradually moderating.’
Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri Jr. said the bank’s forecast for August inflation is 6.1 percent.
‘Selected food items like vegetables and fish, together with pump prices likely kept [consumer price index] CPI near 6 percent,’ added Neri.
He said this should explain why the Bangko Sentral ng Pilipinas (BSP) had to hike the key interest rate on August 27 even if growth remains a ‘serious concern.’
Union Bank of the Philippines (UBP), in its latest ‘MktsFocUs’ report, said it sees inflation in August at 6.1 percent.
‘August inflation above 6 percent year-on-year (YoY) would likely reflect weather-related supply disruptions, flooding-induced logistics bottlenecks, elevated oil prices, a weaker peso, and ongoing cost pass-through,’ the bank said in its report published over the weekend.
In its commentary over the weekend, ANZ Research said it expects headline inflation to have moderated to 6 percent in August from 6.2 percent in July.
‘Transportation inflation likely eased compared to July, but it is expected to have remained elevated on an annual basis. Food inflation continued to edge higher on the back of rising rice prices,’ added ANZ Research.
Jonathan L. Ravelas, senior adviser at Reyes Tacandong and Co., said August inflation is seen to ‘moderate to 6.1 percent.’
Ravelas said this suggests that earlier monetary tightening and improving supply conditions are ‘gradually gaining traction.’
‘The encouraging news is that inflation appears to be moving in the right direction, providing some relief to consumers and businesses,’ he said.
Inflation battle
HOWEVER, the foreign exchange analyst said at 6.1 percent, inflation remains well above the central bank’s target range, indicating that price pressures are still elevated and the fight against inflation is ‘far from over.’
‘More importantly, while inflation may ease in the near term, the combined impact of the recent wage hike, the potential effects of El Niño on food supply, and ongoing geopolitical tensions in the Middle East and the Russia-Ukraine conflict could pose upside risks to inflation in the coming months,’ Ravelas said.
These factors, he emphasized, could keep inflation elevated and may require the BSP to maintain a ‘hawkish stance’ or even consider further monetary tightening if needed to anchor inflation expectations.
As such, Ravelas said the key challenge is to ensure that the current downtrend becomes ‘sustainable’ so that purchasing power recovers without reigniting inflationary pressures.
Velasquez shared the same view saying upside risks remain significant, particularly from elevated oil prices, a prolonged El Niño episode that could disrupt agricultural output, and the potential pass-through of higher minimum wages to consumer prices.
Inflation is likely to remain elevated for the rest of the year and could accelerate further in the fourth quarter, she added.
However, given that much of the remaining inflationary pressure is ‘supply-driven,’ the group chief economist of Chinabank said further monetary tightening would have ‘limited effect’ in bringing inflation back to the BSP’s 2-percent to 4-percent target band this year.
‘For 2027, we are less pessimistic than the BSP, expecting inflation to moderate toward 4 percent, as lukewarm domestic demand should help contain underlying price pressures,’ Velasquez added.
Neri also noted that inflation will likely remain a challenge for the rest of the year, adding that BSP may have to keep a ‘tightening bias.’
ANZ Research said going forward, inflation is expected to moderate but remain well above the central bank’s target range.
‘Further upside pressure to inflation could arise if El Niño drives up food prices,’ added ANZ Research.
But ANZ Research expects the BSP to hold the policy rate steady in its meeting in October and raise the key interest rate anew in December in response to El Niño effects.
For its part, Citi said an October hike is possible only if August and September inflation readings ‘do surprise significantly to the upside.’
‘Apart from being due to El Niño related surprises, diesel prices could also rebound. And along with PHP trade-weighted depreciation, this could reactivate core inflation,’ Citi said in a commentary issued over the weekend.
Conversely, it said the risk scenario of there being no hike in December could materialize if the El Niño impact on food prices up to November turns out ‘significantly milder’ compared to BSP’s expectation.
While the MB opted for a preemptive policy move during its August 27 rate-setting meeting, it revised downwards its inflation forecast for 2026 to 6.1 percent from its 6.4 percent forecast during its June 18 policy meeting.
However, it raised its inflation forecast to 5.4 percent for 2027, compared to its 4.5 percent forecast last June 18.
According to BSP Assistant Governor for Monetary Policy Sub-Sector Rogelio V. Mercado Jr., ‘the 6.1 percent inflation is of course driven by lower-than-expected inflation in June and July, as well as declining oil prices.’
The central bank, in a statement released over the weekend, said it is looking at a 5.5 to 6.5 percent inflation forecast range for August as it gauges how recent weather disturbances alongside the elevated fuel costs weighed on the prices of food.
‘Upward price pressures for the month are likely to be driven by higher rice, vegetable, fruit, and fish prices, partly due to unfavorable weather conditions, and elevated domestic fuel costs,’ the BSP said.
However, the central bank explained that upward pressures are expected to be mitigated by lower prices of meat, as well as lower electricity rates and the peso appreciation.