UNLIKE April’s fuel-driven spike, the second wave of inflation, which could start in September, is expected to be ‘broader and stickier’-driven by food, labor costs, and more, according to a bank economist.
In a commentary on Thursday, Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri Jr. said there may be ‘a potential double peak’ in inflation, as he explained that headline inflation is seen to quicken to 6.9 percent in September.
If realized, this would end four straight months of easing and mark the highest reading since April’s 7.2 percent peak, Neri said.
‘September’s rebound could mark the start of a second inflation peak, with inflation potentially breaching 7 percent in the coming months,’ the BPI lead economist said.
‘Unlike April’s fuel-driven spike, the second wave is likely broader and stickier, driven by food, labor costs and more,’ added Neri.
This year, inflation peaked at 7.2 percent in April, but it started easing to 6.8 percent in May; 6.4 percent in June; 6.2 percent in July, and 6.1 percent in August.
Neri said food likely drove much of the increase in September as Habagat-driven monsoon rains and flooding disrupted the supply and transport of perishables, lifting prices of vegetables, fruits, and fish.
‘Rice prices also remained firm, while transport costs added to the pressure as fuel relief proved short-lived,’ added the lead economist of BPI.
Meanwhile, he explained that the ‘reprieve’ from pump prices early in the month was offset by successive price hikes beginning in the second half of September, as renewed tensions in the Middle East pushed global oil prices higher.
However, he said utilities provided only a partial offset.
Neri indicated that the ‘fuller impact’ of the September 28 fare hikes may become apparent in the October inflation reading, while wage increases could ‘reinforce second-round price pressures.’
He explained further that unlike fuel prices, fares and wages are less likely to ‘reverse,’ making inflation ‘harder to unwind.’
Upside risks
Upside risks, meanwhile, include a potential Super El Niño, volatile oil prices amid Middle East tensions, peso weakness, and the pending ERC decision on Meralco’s rate reset.
Given these recent developments, Neri sees the Bangko Sentral ng Pilipinas (BSP) maintaining a hawkish stance due to the renewed inflation and peso pressures as the pass-through from fare and wage increases lies ahead.
The Monetary Board, the highest policy-making body of BSP, raised the policy rate to 5 percent in August, its third consecutive 25-basis-point hike.
‘This strengthens the case for further or possibly more aggressive tightening to anchor inflation expectations and support the Peso,’ added Neri.
Neri explained that a ‘strong policy action’ would reinforce the BSP’s commitment to price stability.
Meanwhile, he underscored the importance of placing greater urgency on the fiscal side to speed up infrastructure execution, improve agricultural productivity, strengthen energy security, and advance governance and other structural reforms.
‘With growth increasingly constrained by supply-side factors, a stronger fiscal reform agenda is needed to lift potential output and reduce the burden on monetary policy,’ Neri said.
In a statement on Wednesday, the central bank signaled that inflation in September could accelerate to as fast as 7.4 percent. If realized, this would be the fastest rate in over three years or since March 2023 when it reached 7.6 percent.
The BSP said it projects September 2026 inflation to settle within the range of 6.4 to 7.4 percent.
Still, heading towards either side of the spectrum would indicate that the inflation downtrend has come to an end.
If inflation settles at the lower end of the range of 6.4 percent, it would mark the fastest pace in four months or since May 2026 when inflation was at 6.8 percent.