While headline inflation slowed to 6.8 percent in May from 7.2 percent in April, core inflation—which strips out volatile items—picked up to 4.1 percent from 3.9 percent, a key signal that underlying price pressures are strengthening, the Bank of the Philippine Islands (BPI) said on Friday.
Year-to-date averages stand at 4.5 percent for headline inflation and 3.4 percent for core inflation, with rice prices continuing to climb faster year-on-year.
Even with the latest moderation, BPI lead economist Jun Neri said upside risks remain substantial and are set to build in the coming months. Second-round effects from past cost increases have yet to fully show up, as delayed fare adjustments and minimum wage hikes have so far kept consumer prices from rising further; once these are implemented, costs are likely to pass through quickly.
Higher fertilizer expenses linked to regional tensions are also expected to feed into food prices later this year, as current plantings—set for harvest in the second half—reflect more expensive inputs. Adding to concerns, a severe El Niño is forecast from June to August, threatening agricultural output especially rice, which makes up nearly 9% of the consumer basket and could push inflation higher if supplies are hit.
While the softer May figure removes the need for an emergency off-cycle move, Neri said the central bank is widely expected to raise its key rate by at least 50 basis points at its next scheduled meeting. The gap between inflation and policy rates remains wide, keeping pressure on the peso, and early action is seen as a way to avoid sharper, more disruptive hikes later if prices reaccelerate., Neri noted. Tighter policy would also reinforce the Bangko Sentral ng Pilipinas’ commitment to price stability, help anchor public expectations, and support the currency by preserving returns on local assets and deterring capital outflows.
Although inflation is largely supply-driven and monetary policy cannot fix production constraints, rate adjustments remain necessary to manage expectations and exchange rate volatility—factors that themselves influence price trends. Officials are prioritizing long-term stability over near-term growth effects, as sustained high inflation would do greater economic harm than higher borrowing costs. Preserving foreign reserves and ensuring orderly currency movement further justify tightening, with the move intended to show the central bank is not falling behind in its fight to bring inflation back to target.
