The Philippines’ inflation battle is far from over
The Philippines faces persistent inflationary pressures, with September's year-on-year inflation rate unexpectedly rising to 7.2%, largely due to non-rice food prices according to ING Research. This significant uptick points to supply-side challenges, which are expected to keep inflation elevated in the near term. A potential 25 basis point rate hike later this month appears increasingly likely as the central bank responds. This dynamic suggests a tightening stance could emerge amidst ongoing global economic uncertainties.
What the desk is arguing
The desk posits that the Philippines' inflation challenges are far from resolved, especially following the notable increase to 7.2% YoY in September. Per the full note from ING, this surge was predominantly linked to a revival in non-rice food prices, highlighting supply chain vulnerabilities that could continue fueling inflationary pressures.
This inflation spike is largely attributable to food costs, with non-rice food inflation contributing approximately 75% to the monthly CPI increase, indicating that supply-side issues rather than demand pressures are driving the inflation narrative. Core inflation, while also on the rise, remains relatively stable at 4.7%, suggesting some resilience in alternative sectors.
Where it sits in our coverage
Our consensus target for the Philippine peso is currently at 1.075, with estimates from several firms providing insight into future directional expectations: - jpmorgan: 1.10 target for Mar26 - bofa: 1.04 target for Mar26
This view aligns closely with jpmorgan, which maintains a bullish stance on the peso amid anticipated monetary tightening. However, our desk's estimate approaches the upper end of the spectrum, reflecting a more cautious outlook than bofa, which appears to be more conservative.
How other firms see it
Most aligned firms echo a similar outlook, contending that the persistent inflation will likely prompt the central bank to tighten policy. In contrast, bofa holds a more cautious stance, anticipating lower inflation risks and less aggressive policy adjustments.
Key indicators to monitor include the trajectory of food inflation and the movements in the USD/PHP pair, as these factors will play a crucial role in shaping market sentiment moving forward.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Philippines inflation spiked to 7.2% YoY in September, driven by food prices.
- 02ING anticipates a 25bp rate hike from the central bank soon.
- 03Core inflation remains steady at 4.7%, indicating mixed pressures.
- 04Supply-side challenges persist, posing risks to inflation expectations.
Market implications
Traders should watch for the upcoming central bank rate decision, expected to reinforce the peso's trajectory given the recent inflation print. Levels around 1.075 could provide key resistance or support as the market digests this news.
Risks to this view
A sudden drop in global oil prices or a significant improvement in food supply conditions could lead to a downward revision of inflation expectations, invalidating the current bullish stance on the peso.
Older quick take Quick take Published 11:20 Philippines The Philippines’ inflation battle is far from over Philippines inflation surprised significantly to the upside at 7.2% YoY in September, driven mainly by a sharp rebound in non-rice food prices. Broader food inflation and lingering El Niño and oil price risks should keep inflation elevated, supporting our call for another 25bp rate hike later this month Food prices have driven the surge in CPI inflation Food prices drove the surge in CPI inflation Philippine inflation surprised sharply to the upside in September, accelerating to 7.2% YoY from 6.1% in August and exceeding our already above-consensus forecast of 6.8%. The surge was overwhelmingly driven by food prices, with non-rice food inflation accounting for roughly 75% of the 1.1 percentage point increase in headline CPI.
Rice and transport inflation contributed around 10% each, suggesting that the latest upside surprise was largely the result of renewed supply-side pressures rather than a broad-based demand-driven inflation shock. While core inflation also accelerated, it remained relatively contained at 4.7% YoY. The Philippines' CPI basket is particularly sensitive to movements in food and fuel prices, with food and transport together accounting for around 50% of total CPI weights.
Food inflation accelerated to 6% YoY as early as April and has remained elevated in the 6-7% range since then. Rice inflation has also proven sticky despite efforts to stabilise domestic supply conditions. More notable, however, was the sharp rebound in non-rice food inflation in September.
The rebound points to a broadening of food price pressures beyond rice, with stronger inflation transmission to cereal and related food products. Food accounted for a large part of the increase in inflation Source: CEIC, ING Research "> Source: CEIC, ING Research El Niño and fuel pass-through keep inflation risks elevated This suggests that food inflation is becoming increasingly broad-based. While El Niño-related weather disruptions are contributing to higher food prices, a significant share of the inflation transmission appears to be occurring through higher transportation and production costs linked to elevated fuel prices.
External factors are also adding to pressures, including Black Sea supply disruptions and higher global corn prices resulting from weaker crop yields in the US and Europe. As a result, inflationary pressures are spreading across a wider range of food categories rather than remaining concentrated in rice. We think the full impact of El Niño is yet to be felt and is likely to become more evident at the end of 2026 and early 2027, increasing the risk that food inflation remains elevated for longer and entrenching a more persistent inflation cycle.
What stands out when comparing the Philippines with its regional peers is the much stronger pass-through from global oil prices to domestic fuel prices. While countries such as Indonesia and India have experienced far smaller increases in retail fuel prices, the Philippines has seen a much larger transmission of higher global energy costs to consumers. As a result, fuel inflation has been a more significant driver of headline CPI in the Philippines, amplifying second-round effects on other goods and services, whereas these spillover effects have remained more contained in neighbouring economies.
Gasoline price hikes across the region Source: CEIC, ING Research "> Source: CEIC, ING Research A rate hike is likely in October's policy review We maintain our call for Bangko Sentral ng Pilipinas to hike rates by 25bp in the fourth quarter of this year. Today’s strong inflation print has shifted the balance in favour of an earlier hike in October. The inflation outlook remains skewed to the upside amid lingering uncertainty over El Niño-related food supply disruptions, elevated energy prices, PHP weakness, and potential second-round effects from higher wages and food costs.
BSP is likely to err on the side of caution and maintain a tightening bias to contain inflation expectations until it is confident that inflation is on a durable path back to target. Monetary Policy Interest rates Inflation Asia Markets Asia 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.
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