By Aubrey Rose A. Inosante, Reporter
Headline inflation slightly inched up in June, driven by higher costs of utilities, transport, and education, the Philippine Statistics Authority reported on Friday.
However, the deceleration in food prices, particularly rice, tempered June’s uptick below the target band, which leaves the central ample space for additional rate cuts this year.
The consumer price index (CPI) rose to 1.4% in June, slightly faster from 1.3% in May, but slowed from 3.7% in the same month a year ago, preliminary data from the PSA showed.
The June print was within the Bangko Sentral ng Pilipinas’ (BSP) 1.1% to 1.9% forecast and below the 1.5% median estimate in a BusinessWorld poll late last week.
It also marked the fourth straight month that inflation settled below the BSP’s 2-4% target band.
For the first six months, inflation averaged 1.8%, cooling down from the 3.6% average in the first semester of 2024.
This sits well below the central bank’s target band but a bit higher than the downwardly revised 1.6% inflation baseline forecast this year.
Core inflation, which excludes volatile prices of food and fuel, remained steady at 2.2% in June.
Core inflation averaged 2.2% in the January-June period, slowing down from 3.4% in same period last year.
“Inflation is projected to remain below the lower end of the target in 2025, primarily due to the continued easing of rice prices. However, this could be partly offset by the recent spike in oil prices,” the BSP said in statement.
The BSP said “a more accommodative monetary policy stance is warranted.”
“Emerging risks to inflation from rising geopolitical tensions and external policy uncertainty will require closer monitoring, alongside the continued assessment of the impact of prior monetary policy adjustments,” the BSP said.
BSP Governor Eli M. Remolona said on Thursday that the central bank has room for two more rate cuts within the year due to benign inflation and growing external risks.
At its June 19 meeting, the central bank delivered a second straight 25-basis-point (bp) cut this year, bringing its policy rate to 5.25%.
The remaining policy meetings this year are scheduled for Aug. 28, Oct. 9, and Dec. 11.
“The main contributor to the increase in inflation in June 2025 compared to May 2025 was the faster increase in the prices of housing, water, electricity, gas and other fuels at a rate of 3.2%,” National Statistician Claire Dennis S. Mapa said in a briefing.
The index rose from 2.3% in May and 0.1% in the same month last year. It was the quickest increase in nine months or since the 3.3% logged in September last year.
Housing, water, electricity, gas and other fuels accounted for 63.3% of June’s uptrend, PSA said.
The largest uptick under this index was recorded in electricity, sharply rose to a two-year high of 7.4% in June from the 2.8% print in May. This was the top contributor to the June CPI, contributing 21.4% or 0.3 percentage point.
This was despite the Manila Electric Co. cut the overall rate by P0.1076 per kilowatt-hour (kWh) to P12.1552 per kWh in June from P12.2628 per kWh in the previous month.
In June, Mr. Mapa also attributed transport costs as a source of faster inflation, with 23.8% share.
Transport index declined at a slower pace to 1.6% from the 2.4% drop in May.
Likewise, gasoline’s drop slowed to 8.9% in June from the -13.2% in May. Diesel’s fall also eased to 7.1% in June from the 9.3% dip in the previous month.
Asked on the impact of the rise in pump prices driven by the prolonged Middle East war to the inflation, Mr. Mapa said this would likely be delayed.
“It will have impact. In the previous years, particularly in 2022-2023 [Ukraine-Russia war], it was substantial. But in the previous data, it had a lag effect, usually for two to three months,” Mr. Mapa said.
The heightened war between Israel and Iran drove global oil prices last month, which later pushed local pump prices but it later eased following the ceasefire deal.
During the month, pump price adjustments stood at a net increase of P6.30 a liter for gasoline, P8.25 a liter for diesel and P6.50 a liter for kerosene.
In addition, the PSA said the education services saw an uptick in tuition fees as school opened in June. It quickened to 5.4% from the revised 4.2% in May.
FOOD EASES IN JUNE
The heavily weighted food and nonalcoholic beverages index eased to 0.4% in June from 0.9% in May, with 10.8% share of June’s print.
The deceleration of the index, which accounts for nearly 40% of the country’s basket of goods and services, was the slowest in more than five years or since the 0.3% in November 2019.
Food-alone index similarly eased to its slowest clip in more than five years to 0.1% in June.
The PSA said meat and other slaughtered animals posted a 9.1% inflation rate, faster than 7.9% clip in the previous month.
Pork rose to 13% in June from 11.9% in May. This was the second contributor to the May inflation, contributing 18%.
Poultry also accelerated to 10.4% in June from 7.9% in May. Fish and other seafood prices also quickened to 6.2%.
Meanwhile, rice inflation further contracted for the sixth straight month to a record 14.3% in June, the biggest drop since 1995.
The PSA reported that rice prices declined further in the second phase of June with regular milled rice averaging P42.53 per kilo from the P43.32 per kilo in mid-May.
“The sharp decline in food inflation over the past year underscores the continued progress in our coordinated efforts to boost local production, improve logistics, and implement calibrated trade and biosecurity measures,” Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan said.
“While the continued easing of food inflation is encouraging, we will maintain our vigilance against possible external and domestic risks. Volatile global markets and climate-related disruptions affecting fuel and electricity costs continue to threaten 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 NCR, inflation eased to 1.1% from 1.2%.
Inflation for the bottom 30% of income households contracted for the first time in almost six years to 0.4% in June. This was sharpest decline since the 1.1% fall recorded in October 2019.
This brought the year-to-date inflation for the bottom 30% income households to 0.8%, decelerating from 4.7% in the first semester of 2024.
LAG EFFECTS FROM WAR, WAGE HIKE
Mr. Mapa said the impact of the rise in pump prices driven by the prolonged Middle East war and the approved P50 daily minimum wage hike to the inflation are likely to be delayed.
“It will have impact. In the previous years, particularly in 2022-2023 [Ukraine-Russia war], it was substantial. But in the previous data, it had a lag effect, usually for two to three months,” Mr. Mapa said.
He added that wage increases will likely affect categories such as personal care, miscellaneous goods, and services, though the full effect will be seen in later months.
Mr. Mapa said this would likely be the same case for recently approved P50 daily wage hike for Metro Manila minimum wage earners, the highest pay hike ever granted by the National Wages and Productivity Commission.
“The effectivity of the P50 wage increase here in the National Capital Region is still July 18. What we see in the areas where there are wage increases, first, we have a lag effect. So it doesn’t immediately have an impact. But there are some commodity items that have increased,” he said.
MORE ROOM TO CUT
Aris D. Dacanay, an economist for ASEAN at HSBC Global Research, expects inflation to average at 1.8%, still within the 2-4% target band, as nonfood-related goods remain soft due to imports from China.
“However, with full-year inflation likely falling below the BSP’s target band, the central bank has more than enough room to shift to a more accommodative stance and deepen its easing cycle to below 5% if the growth outlook were to stumble,” Mr. Dacanay said in a research note.
He said their baseline forecast showed that the BSP will likely cut its policy rate to a “neutral rate” of 5%.
The Philippine economy grew by a weaker-than-expected 5.4% in the first quarter, easing from the 5.9% pace last year. This was also below the revised 5.5-6.5% growth target this year.
“True enough, BSP Governor Remolona mentioned that the BSP is prepared to cut its policy rate by twice more this year — potentially bringing the policy rate to 4.75%,” Mr. Dacanay said.
“Though not our baseline scenario, the possibility or risks toward a slightly deeper easing cycle is not farfetched, as long as oil prices do not spike and the currency remains stable.”
Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said the below target inflation can still support possible monetary easing.
This would “counteract risk of slower global economic growth due to President Donald J. Trump’s tariffs/trade wars and due to the Middle East tensions,” he said via Viber message.
“We expect inflation to remain low, as any upward pressures will likely be tempered by the sustained drop in rice prices. This supports our view that the BSP has room for two more 25-bp rate cuts this year,” Chinabank Research said in a note.
It also noted that the recently approved salary hike to be implemented on July 18 “could add some upward pressure” to the consumer prices.
“Should other regional wage boards implement a similar rate of increase, we nonetheless think the overall impact on inflation will be modest and unlikely to significantly push inflation off track,” Chinabank Research said in a note.
For the full year, Chinabank Research said it expects inflation to remain below the central bank’s 2-4% target, “barring any unexpected shocks.”
The BSP said the inflation likely to settle within the 2-4% target range for 2026 and 2027.
