Philippine inflation pressures persist despite softer CPI
The desk assesses Philippine inflation dynamics, noting that while headline consumer price index (CPI) has softened slightly, core inflation remains elevated, indicating persistent price pressures. Per the full note from ING, core inflation is stubbornly anchored above 4%, and rising food prices, particularly rice, exacerbated by El Niño, pose significant upside risks to inflation expectations. This scenario supports the desk's forecast for an additional rate hike in Q4, as targeted inflation rates are likely to be missed for a prolonged period. Our outlook diverges from consensus views given the continued strain from external and weather-related factors affecting key food commodities.
What the desk is arguing
The desk posits that Philippine inflation challenges are far from resolved, driven by resilient core inflation rates and concerning trends in food prices, particularly rice. According to ING, headline CPI eased only marginally to 6.1% year-on-year in August, reflecting ongoing supply pressures. As inflation risks tilt upward, it reinforces the expectation of a potential interest rate hike before the year ends.
Despite a slight improvement in food and beverage inflation, which moderated to 4.6% YoY, the continued acceleration in rice prices—reaching 19.4% YoY—illustrates persistent supply chain vulnerabilities. Coupled with El Niño impacts, these factors could hinder disinflation efforts, fostering an environment where inflation exceeds targets longer than anticipated.
Where it sits in our coverage
Our current consensus target for the Philippine peso (PHP) against the US dollar (USD) is 1.075 with a range of 1.04 to 1.12, which reflects a cautious but potentially bullish positioning depending on overall inflation trajectory. The jpmorgan target of 1.10 for March 2026 aligns with this outlook, while bofa holds a more bearish stance at 1.04.
This desk's analysis suggests an expectation for greater inflationary pressures than the cross-firm consensus anticipates, specifically highlighting risks that could push inflation above suggested targets through Q4 2023. The view leans towards the upper bound of the consensus range due to these significant inflation risks.
How other firms see it
In general, firms like jpmorgan are positioned in alignment with our outlook, advocating for a stronger PHP in the face of sustained inflation. In contrast, bofa remains cautious, casting a more pessimistic view on both inflation and currency strength, which indicates diverging paths in monetary policy responses across institutions.
With inflation factors at play, especially in agriculture and food sectors, it's essential to monitor the trajectory of the USD/PHP, as it reflects the overarching economic sentiment and bank policy expectations, particularly in light of the adjustments expected from the Bangko Sentral ng Pilipinas (BSP).
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Philippine core inflation remains sticky above 4% YoY.
- 02Headline CPI softened only slightly to 6.1% in August.
- 03Rice price inflation is accelerating, indicating underlying supply risks.
- 04Potential for additional rate hike in Q4 2023 supported by prevailing inflation risks.
Market implications
The market should watch key support/resistance levels around 1.075 for PHP/USD as inflationary pressures persist. Traders should be alert for any sudden shifts in policy signals from the Bangko Sentral ng Pilipinas, especially as we approach the end of Q4.
Risks to this view
A significant decline in global grain prices or a robust increase in domestic agricultural output could alleviate price pressures and challenge the desk's rate hike forecast. Additionally, any moderate shift in external economic conditions that boosts overall supply chain efficiency could potentially lead to easing inflationary trends.
Older quick take Quick take Published 04:38 Rates Philippines Philippine inflation pressures persist despite softer CPI While Philippine headline CPI eased marginally, persistent core inflation and rising food-price risks from El Niño suggest prices will stay above target for longer. This supports our call for an additional rate hike in the fourth quarter Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Deepali Bhargava Regional Head of Research, Asia-Pacific Inflation remains sticky despite a modest easing in headline CPI Headline CPI inflation eased marginally to 6.1% YoY in August from 6.2% in July, in line with expectations. Food and beverage inflation moderated to 4.6% YoY, reflecting softer price pressures in non-rice food items.
However, rice prices continued to accelerate, rising to 19.4% YoY from 17.0%, highlighting persistent supply-side pressures. Underlying inflation remained largely unchanged, with core prices holding above 4% YoY and services costs contributing a steady 1.1 percentage points to headline inflation. Fuel price developments were mixed, as transport costs accelerated while electricity prices declined.
Rice inflation made a larger contribution to headline inflation in August El Niño, rice prices and wage pressures keep upside risks elevated Looking ahead, inflation risks remain tilted to the upside. Although domestic rice inventories remain relatively comfortable, both global and local rice price inflation continue to accelerate. Meanwhile, El Niño conditions are now firmly established.
The World Meteorological Organisation expects weather disruptions to strengthen and persist until at least February 2027. The risk of renewed food‑price pressure is rising, especially for rice and other weather‑sensitive crops. This could slow the disinflation process.
The government has also indicated that the Philippines may need to import as much as five million metric tons of rice to secure adequate supplies as storms, monsoon rains and a developing El Niño-related drought threaten domestic harvests. Moreover, core inflation remains sticky above 4% YoY, while renewed upward pressure from oil prices could keep headline inflation elevated. We expect CPI inflation to remain above 5.5% YoY for the remainder of 2026.
The risk of further wage pass-through into services inflation remains. As a result, inflation is unlikely to return sustainably to the Bangko Sentral ng Pilipinas’ target range before 2028. Rice inflation is picking up despite healthy stocks One more rate hike likely in 4Q26 We continue to expect one additional 25bp rate hike in 4Q26.
Uncertainty surrounding the severity and duration of El Niño, higher oil prices, depreciating PHP, and the extent of wage pass-through is unlikely to be fully resolved before then. Together with persistent core inflation and elevated inflation expectations, these factors should keep the BSP focused on ensuring that inflation returns to target on a sustained basis. Inflation Asia Pacific ASEAN Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Older quick take
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