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SUBPAR June inflation affords the Bangko Sentral ng Pilipinas (BSP) capacity to persist with its easing strategy this year, though unforeseen price shocks and the US Federal Reserve’s monetary trajectory could influence this perspective.
Finance Secretary and Monetary Board member Ralph G. Recto articulated in a statement on Friday that the lower-than-anticipated June inflation figure “offers more latitude for the BSP to further reduce policy interest rates to enhance the purchasing power of Filipinos, attract more investments, and stimulate economic growth, particularly in light of escalating global uncertainties.”
“Given the favorable inflation outlook and the BSP’s recent dovish guidance, another rate reduction in the upcoming months is feasible,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. mentioned in a note.
June’s inflation rose to 1.4% from 1.3% in May, as reported by the Philippine Statistics Authority on Friday.
Nevertheless, this was slower than the 3.7% rate observed in June of the previous year and fell within the central bank’s 1.1% to 1.9% projection for the month. It was also just below the 1.5% median estimate from a BusinessWorld survey of 17 analysts.
June represented the fourth consecutive month that inflation remained beneath the BSP’s 2-4% annual target.
For the initial half of the year, headline inflation averaged 1.8%, a slight increase from the central bank’s baseline prediction of 1.6%.
BSP Governor Eli M. Remolona, Jr. stated on Thursday that the central bank has the capacity for two additional rate reductions this year amidst tempering inflation and sluggish economic expansion.
The Monetary Board on June 19 executed a second consecutive 25-basis-point (bp) cut, adjusting the policy rate to 5.25%. To date, it has decreased benchmark interest rates by a total of 125 bps since initiating its easing cycle in August of the previous year.
Its upcoming policy meetings this year are slated for Aug. 28, Oct. 9, and Dec. 11.
Mr. Neri anticipated that the consumer price index would remain under 2% in July and August due to declining rice prices.
Rice inflation diminished for the sixth consecutive month to 14.3% in June, marking the steepest decline since 1995. National Statistician Claire Dennis S. Mapa previously indicated that he expects rice prices to potentially remain negative until year-end.
“However, beneficial base effects might start to diminish by September, with inflation likely returning to 3% by November. This forecast does not account for any supply disturbances from the impending typhoon season. Inflation could surge if a strong typhoon impacts the agricultural sector,” Mr. Neri explained.
According to the Philippine Atmospheric, Geophysical and Astronomical Services Administration, 10 to 14 tropical cyclones are anticipated to enter the Philippine area of responsibility this year.
Mr. Neri noted that the “greatest risk” to further monetary easing by the BSP is the unpredictability surrounding the US Federal Reserve’s own rate reduction cycle.
“It remains uncertain whether the Federal Reserve will lower rates this year, and US inflation data over the next two months will be vital in assessing the possibility of a Fed cut in September,” he stated.
“There’s a concern that tariffs have not been completely passed on to consumers as many US companies imported significantly prior to April to mitigate the impact. If inflation in the US escalates, the Fed may defer rate cuts, which could weaken the peso and restrict the BSP’s flexibility.”
President Donald J. Trump has called for immediate rate reductions, but Fed officials indicated that with inflation risks increasing, there is no need to adjust policy unless the labor market experiences significant weakening, as reported by Reuters.
New inflation statistics will be released in approximately two weeks, and Fed Chair Jerome H. Powell has remarked that if inflation does increase due to tariffs, it will likely begin occurring this summer.
Last month, the Fed maintained its benchmark overnight interest rate in the 4.25%-4.5% range, where it has resided since December. This decision has incited anger from Mr. Trump, who believes that recent subdued inflation necessitates a sharp reduction in the central bank’s policy rate. He has requested Mr. Powell’s resignation.
Mr. Powell, intending to fulfill a term as chair concluding on May 15, reiterated last Tuesday the central bank’s plans to “wait and learn more” concerning how much tariffs influence inflation before making further reductions.
Rate futures indicate traders are aligned with that outlook, with financial market predictions suggesting a September initiation for rate decreases and a total of just two quarter-point reductions by year-end, not the three rate cuts they had previously favored.
Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco projected two additional 25-bp cuts from the BSP before the end of the year.
“Our full-year average forecast of 1.8% remains appropriate, with risks skewed to the downside, and we expect this average rate to rise to a still-modest 2.6% next year, comfortably within the BSP’s 2-to-4% target range,” he noted.
For its part, Citigroup, Inc. stated that inflation is anticipated to remain below the central bank’s aim until the first quarter of 2026, in response to waning external and domestic demand.
It projected the Monetary Board would implement 25-bp reductions during its August and October reviews. It also anticipates an additional 25-bp cut during the policy-setting body’s initial meeting in 2026, likely to be held in February.
Citigroup predicts headline inflation to average 1.7% this year.
“Our anticipated trajectory reflects a decrease in year-on-year inflation in food due to rice prices, primarily as base effects emerge in the latter half of 2025, despite sequential price increases,” it stated.
“We also foresee stable or slightly heightened inflation in services like recreation and education. This, however, could be counterbalanced by an uptick in disinflation from utilities and fuel prices, especially following the recent decrease in oil prices. Risks could be skewed to the downside, particularly if food inflation continues to decline sequentially.”
Mr. Neri concurred that inflation will remain manageable as long as Brent crude oil prices stay below $85 per barrel.
“The recent ceasefire in the Middle East has resulted in a drop in oil prices, alleviating inflationary pressure,” he stated. — Aubrey Rose A. Inosante with Reuters
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