Philippines inflation eases, but BSP rate hikes still Likely
The ING desk argues that despite a slight easing in Philippines headline inflation to 6.4% YoY in June, the acceleration in core inflation to 4.4% and sticky services/utility costs support the case for further BSP rate hikes. The data undershot market expectations, but the underlying persistence keeps the tightening bias intact. No consensus targets are available from our internal coverage for USD/PHP, and no high-impact events are scheduled in the next 30 days. The key takeaway is that rate hike expectations will keep the peso supported near-term.
What the desk is arguing
The ING desk maintains that further BSP rate hikes remain likely even after headline inflation eased to 6.4% YoY in June from 6.8%. The moderation, driven by softer transport and non-rice food prices, masks accelerating core inflation to 4.4%, highlighting persistent underlying pressures. Per the full note source, the desk rejects the alternative read that the peak has passed, citing sticky services and utility inflation along with food supply risks as reasons to keep tightening.
The key supporting evidence is the 0.3ppt acceleration in core inflation, which the desk views as more indicative of the trend. Transport inflation slowed sharply to 13% YoY on the back of a 12% drop in domestic fuel prices in June, but the broader slowdown is insufficient to shift the BSP’s hawkish stance. The desk emphasizes that food inflation, with its 38% weight in the CPI basket, remains elevated and supply risks persist.
Key takeaways
- 01Philippines headline CPI eased to 6.4% YoY in June, below expectations, but core inflation accelerated to 4.4%.
- 02ING sees further BSP rate hikes as likely due to persistent underlying cost pressures, especially utilities and services.
- 03Transport disinflation provided temporary relief, but food price risks and core stickiness argue against a policy pivot.
- 04The peso is likely to remain supported in the near term as markets price in additional tightening.
Market implications
USD/PHP should trade with a modest downside bias as the BSP is seen delivering at least one more 25bp hike. The key level to watch is the 56.00 support; a break below could accelerate losses towards 55.50. The next inflation print on August 3 will be the primary test.
Risks to this view
The call is invalidated if the BSP signals a pause or if global risk appetite turns, depressing the peso. A sharp drop in oil prices could accelerate disinflation and allow the BSP to hold rates, weakening the PHP.
Older quick take Quick take 04:54 Philippines inflation eases, but BSP rate hikes still Likely Philippines headline inflation eased to 6.4% YoY in June, driven by softer transport and food price pressures, but core inflation accelerated to 4.4%, highlighting persistent underlying cost pressures. Despite signs that inflation may have peaked, sticky services and utility inflation, and food supply risks support our view of further rate hikes Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Deepali Bhargava Regional Head of Research, Asia-Pacific Inflation undershoots expectations Headline CPI inflation in the Philippines eased to 6.4% YoY in June from 6.8% in May, coming in slightly below market expectations. The moderation was largely driven by softer transport inflation and easing price pressures in non-rice food items.
However, underlying inflation trends remained less benign, with core inflation accelerating by 0.3ppt to 4.4% YoY as utility and services costs continued to firm.Headline CPI inflation in the Philippines eased to 6.4% YoY in June from 6.8% in May, coming in slightly below market expectations. The moderation was largely driven by softer transport inflation and easing price pressures in non-rice food items. However, underlying inflation trends remained less benign, with core inflation accelerating by 0.3ppt to 4.4% YoY as utility and services costs continued to firm.
Transport leads the slowdown, while core pressures persist The biggest source of disinflation came from transport. Following a roughly 12% decline in domestic fuel prices in the month of June and 24% from their April peak, transport inflation slowed to 13% YoY from 16% previously. Food inflation remained the largest contributor to headline CPI, reflecting its roughly 38% weight in the consumption basket.
While food prices continued to exert upward pressure, the contribution eased modestly from the previous month. Rice inflation softened to 15.0% YoY from 15.6%, contributing 1.1ppt to headline inflation. At the same time, inflation in non-rice food categories also moderated, suggesting that some of the supply-driven pressures seen in recent months are beginning to ease.
Meanwhile, housing, water, electricity, gas and other fuels continued to contribute around 1.6ppt to headline inflation, broadly unchanged from May, highlighting the stickiness of utility-related price pressures. Services inflation continued to drift higher, contributing slightly more than 1.1ppt to headline inflation. Within the category, restaurant and hotel inflation accelerated to 7.0% YoY from 6.7% previously, pointing to still-resilient consumer demand and ongoing pass-through of higher input and labour costs.
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