MAYBANK INVESTMENT BANK and United Kingdom-based think tank Pantheon Macroeconomics have raised their Philippine inflation forecasts until next year amid sticky food and oil prices.
In a Sept. 4 report, Maybank said it now sees inflation accelerating to 5.5% this year from its prior 5.3% estimate, and to 5.1% next year from 4.9% previously, driven largely by food inflation risks in the second half of 2026.
“The persistence of elevated inflation across transport, housing, health and services, alongside rising risks from El Niño-related food supply disruptions and peso depreciation, suggests that disinflation is likely to remain gradual,” Maybank analysts said.
Separately, Pantheon Macroeconomics upwardly revised its inflation estimates to 5.5% for this year from 5.3% previously, and 3.2% for 2027 from 2.7% previously.
“This is to take into account the likely stickiness in global oil prices until the end of this year, owing to the low-level, but recurring, skirmishes between the US and Iran affecting flows from the Middle East,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco and Asia Economist Meekita Gupta said in report on Monday.
“Moreover, albeit less importantly, the continued slide in the headline rate in August, to 6.1% from 6.2%, was not as notable as we expected, by 0.1 ppt (percentage point),” they added.
In August, inflation eased to a five-month low of 6.1% from 6.2% in July, as lower food and utility prices offset elevated transport costs.
August marked the sixth month in a row that the headline print was above the central bank’s 3% target, bringing the year-to-date average inflation to 5.2%.
However, Mr. Chanco and Ms. Gupta noted core inflation likely peaked earlier this year as August data showed a second straight month of softening.
“Crucially, we’re now seeing more signs that core inflation has peaked. The official underlying pace fell further last month, to 4.1% from 4.2%,” the Pantheon economists said.
“Admittedly, our estimate for ‘true’ core — which has been stuck at around 4.7% — has yet to show a similar turnaround, but previously hot trends at the margin here have…,” they added.
This, according to Mr. Chanco and Ms. Gupta, strengthens the case for the Bangko Sentral ng Pilipinas (BSP) to end their tightening cycle.
ONE MORE HIKE
However, Maybank and Nomura Global Markets Research still see room for a final 25-basis-point (bp) policy rate increase before yearend.
“Reflecting the persistence of inflationary pressures and the potential for El Niño to generate second-round effects, we maintain our BSP policy rate forecast at 5.25% by end-2026, as a preemptive measure to anchor inflation expectations and contain the broader pass-through from food, transport and other supply-side pressures,” Maybank said.
Last month, the BSP said inflation will likely peak in the fourth quarter this year as potential supply disruptions from the looming Super El Niño push food prices up. It likewise flagged risks from volatile oil prices and the now-suspended wage hike.
The state weather bureau has warned that the country may face a “strong” El Niño season from September to November, which could intensify into a “very strong” one between October and January next year.
On the other hand, Nomura’s policy forecast came as it noted that its projections of headline inflation at 5.1% and core inflation at 3.9% this year have yet to take into account the expected impact of the severe El Niño event.
“In terms of monetary policy, we maintain our view that BSP will hike by another 25 bps to 5.25% at its next monetary board meeting in October but we continue to flag some risks it could deliver more thereafter,” Nomura research analysts Euben Paracuelles and Nabila Amani said in a report dated Sept. 4.
For Mr. Paracuelles and Ms. Amani, monetary policy may remain restrictive as inflation may continue to exceed the BSP’s 4% ceiling in the near term.
“As we have argued, a further monetary tightening remains warranted based on our forecast for headline inflation to stay above BSP’s 2-4% target range in coming months,” they said.
“Importantly, we maintain our view that core inflation will remain on an upward trajectory throughout the rest of the year, which BSP would likely assess as a sign of second-round effects, requiring additional policy response,” the Nomura analysts added.
In August, the Monetary Board raised its benchmark interest rate for a third straight meeting by 25 bps to an over one-year high of 5%, bringing its cumulative hikes to 75 bps since it first tightened in April.
BSP Governor Eli M. Remolona, Jr. has said the latest rate hike was meant to preemptively contain inflation risks from the looming severe El Niño, potential wage hike, and volatile global oil prices.
He has said he hopes they won’t have to hike more, but left the door open to tighten further as needed to bring inflation closer to their 3% target.
The BSP’s latest projections show headline inflation could breach its target for three straight years at 6.1% this year, 5.4% in 2027, and 3.3% in 2028.
The Monetary Board’s last two rate-setting meetings this year are scheduled for Oct. 22 and Dec. 17. — Katherine K. Chan