By Aubrey Rose A. Inosante, Reporter
Headline inflation marginally rose in June, fueled by increased expenses in utilities and education, as reported by the Philippine Statistics Authority on Friday.
Nevertheless, the slowdown in food prices, especially rice, moderated June’s rise, keeping it below the targeted range, which provides the central bank significant flexibility for further rate reductions this year.
The consumer price index (CPI) increased to 1.4% in June, a slight uptick from 1.3% in May, yet slower than 3.7% during the same month last year, preliminary data from the PSA indicated.
The June figure was within the Bangko Sentral ng Pilipinas’ (BSP) anticipated range of 1.1% to 1.9% and beneath the 1.5% median projection from a BusinessWorld survey conducted late last week.
This also represented the fourth consecutive month that inflation remained under the BSP’s 2-4% target range.
For the initial six months, inflation averaged 1.8%, cooling down from the 3.6% average recorded in the first half of 2024.
This is significantly below the central bank’s target range but slightly exceeded the revised 1.6% inflation baseline forecast for this year.
Core inflation, which excludes volatile prices of food and fuel, held steady at 2.2% in June.
Core inflation averaged 2.2% during the January-June timeframe, declining from 3.4% in the same period last year.
“Inflation is expected to remain beneath the lower end of the target in 2025, primarily due to the ongoing reduction in rice prices. However, this may be partially countered by the recent surge in oil prices,” the BSP stated in a release.
The BSP remarked that “a more accommodating monetary policy stance is necessary.”
“Emerging threats to inflation from escalating geopolitical tensions and external policy uncertainties will necessitate closer observation, along with ongoing evaluations of the effects of past monetary policy changes,” the BSP noted.
BSP Governor Eli M. Remolona mentioned on Thursday that the central bank still has room for two more rate cuts within the year due to favorable inflation trends and increasing external threats.
During its meeting on June 19, the central bank executed its second consecutive 25-basis-point (bp) cut this year, lowering its policy rate to 5.25%.
The remaining policy meetings this year are set for Aug. 28, Oct. 9, and Dec. 11.
“The main factor contributing to the rise in inflation in June 2025 compared to May 2025 was the quicker escalation in the costs of housing, water, electricity, gas, and other fuels at a rate of 3.2%,” National Statistician Claire Dennis S. Mapa stated in a briefing.
The index surged from 2.3% in May and 0.1% in the same month last year. This represented the fastest growth in nine months, or since the 3.3% recorded in September of last year.
Housing, water, electricity, gas, and other fuels accounted for 63.3% of June’s increase, according to the PSA.
The largest rise within this index was noted in electricity, which sharply climbed to a two-year peak of 7.4% in June from 2.8% in May. This was the foremost contributor to the June CPI, accounting for 21.4% or 0.3 percentage points.
This occurred even as the Manila Electric Co. decreased the overall rate by P0.1076 per kilowatt-hour (kWh) to P12.1552 per kWh in June from P12.2628 per kWh the previous month.
In June, Mr. Mapa also identified transport costs as a factor for accelerating inflation, with a 23.8% share.
The transport index lessened at a slower rate to 1.6% from the 2.4% decline in May.
Similarly, the drop in gasoline slowed to 8.9% in June from -13.2% in May. The decrease in diesel also eased to 7.1% in June, down from a 9.3% dip in the prior month.
When questioned about the impact of increasing pump prices due to the ongoing Middle East conflict on inflation, Mr. Mapa suggested that the effects would likely be delayed.
“It will have an impact. In previous years, especially in 2022-2023 [Ukraine-Russia conflict], it was considerable. But historical data indicates it has a lag effect, typically lasting two to three months,” Mr. Mapa stated.
The intensified conflict between Israel and Iran drove global oil prices up last month, subsequently affecting local pump prices, though these later decreased following a ceasefire agreement.
Within the month, pump price changes registered a net increase of P6.30 per liter for gasoline, P8.25 per liter for diesel, and P6.50 per liter for kerosene.
Additionally, the PSA noted that education services experienced an increase in tuition fees as schools opened in June, escalating to 5.4% from the revised 4.2% in May.
FOOD EASES IN JUNE
The heavily weighted food and non-alcoholic beverages index decreased to 0.4% in June from 0.9% in May, comprising 10.8% of June’s overall figure.
The slowdown of this index, which represents nearly 40% of the country’s total basket of goods and services, was the slowest in over five years, or since the 0.3% recorded in November 2019.
The food-exclusive index similarly eased to its slowest rate in more than five years, reaching 0.1% in June.
The PSA reported that prices for meat and other slaughtered animals showed a 9.1% inflation rate, up from 7.9% in the previous month.
Pork prices increased to 13% in June from 11.9% in May, marking it as the second contributor to inflation in May, contributing 18%.
Poultry prices also rose to 10.4% in June from 7.9% in May. Fish and other seafood costs also climbed to 6.2%.
Meanwhile, rice inflation further diminished for the sixth consecutive month, hitting a record low of 14.3% in June, marking the most significant decrease since 1995.
The PSA reported that rice prices dropped in the second half of June, with regular milled rice averaging P42.53 per kilo, down from P43.32 per kilo in mid-May.
“The sharp decrease in food inflation over the past year highlights the ongoing advancements in our coordinated efforts to enhance local production, improve logistics, and implement calibrated trade and biosecurity measures,” Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan remarked.
“While the continued decline in food inflation is pleasing, we remain vigilant against potential external and domestic threats. Volatile global markets and climate-related disruptions impacting fuel and electricity prices continue to endanger price stability,” Mr. Balisacan added.
Meanwhile, inflation in the National Capital Region (NCR) rose to 2.6% in June from 1.7% in May. Outside of NCR, inflation eased to 1.1% from 1.2%.
Inflation for the bottom 30% of income households contracted for the first time in nearly six years, arriving at 0.4% in June. This was the sharpest drop since the 1.1% decline recorded in October 2019.
This brought the year-to-date inflation for the bottom 30% income households to 0.8%, tapering from 4.7% in the first semester of 2024.
LAG EFFECTS FROM WAR, WAGE HIKE
Mr. Mapa indicated that the influence of increased pump prices driven by the prolonged Middle East conflict and the sanctioned P50 daily minimum wage rise on inflation are likely to be delayed.
“It will have an impact. In previous years, especially in 2022-2023 [Ukraine-Russia conflict], it was substantial. But in the past data, it exhibited a lag effect, typically lasting two to three months,” Mr. Mapa mentioned.
He added that wage increases will likely affect categories such as personal care, miscellaneous goods, and services, though the complete impact will be observed in the forthcoming months.
Mr. Mapa stated this would likely also apply to the recently approved P50 daily wage hike for Metro Manila minimum wage recipients, the most substantial pay increase ever authorized by the National Wages and Productivity Commission.
“The implementation of the P50 wage rise in the National Capital Region is still July 18. What we notice in areas where wage increases occur is, first, there is a lag effect. Therefore, it doesn’t yield an immediate impact. However, there are some commodity items that have increased,”“`html
he stated.
ADDITIONAL SCOPE FOR ADJUSTMENTS
Aris D. Dacanay, an economist for ASEAN at HSBC Global Research, anticipates that inflation will average at 1.8%, remaining within the 2-4% target range, as non-food-related items continue to be weak due to imports from China.
“Nevertheless, with yearly inflation likely declining below the BSP’s target range, the central bank has substantial latitude to adopt a more accommodating approach and enhance its easing cycle to below 5% if the growth forecasts were to falter,” Mr. Dacanay stated in a research note.
He mentioned that their baseline projection indicated that the BSP will probably reduce its policy rate to a “neutral rate” of 5%.
The Philippine economy expanded by an underwhelming 5.4% in the first quarter, slowing from the 5.9% rate observed last year. This was also beneath the revised growth target of 5.5-6.5% for this year.
“Indeed, BSP Governor Remolona indicated that the BSP is ready to lower its policy rate by two more times this year — potentially reducing the policy rate to 4.75%,” Mr. Dacanay added.
“Although it’s not our baseline scenario, the likelihood or risks of a slightly deeper easing cycle is conceivable, provided oil prices do not surge and the currency stays stable.”
Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., noted that the below-target inflation could still facilitate potential monetary easing.
This would “mitigate the risk of a slower global economic growth due to President Donald J. Trump’s tariffs/trade conflicts and the tensions in the Middle East,” he stated via Viber message.
“We foresee inflation to stay low, as any upward pressures are likely to be moderated by the continued decline in rice prices. This bolsters our perspective that the BSP possesses room for two additional 25-bp rate decreases this year,” Chinabank Research mentioned in a note.
It further noted that the recently approved salary increase set for implementation on July 18 “could exert some upward pressure” on consumer prices.
“If other regional wage boards adopt a similar rise, we still believe the overall effect on inflation will be minimal and unlikely to significantly derail inflation trends,” Chinabank Research stated in a note.
For the entire year, Chinabank Research indicated it expects inflation to remain below the central bank’s 2-4% goal, “unless any unforeseen shocks occur.”
The BSP mentioned that inflation is likely to stabilize within the 2-4% target range for 2026 and 2027.
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