Headline inflation in the Philippines slowed for a second straight month in June, easing to 6.4% from 6.8% in May. However, core inflation accelerated to its fastest pace in 31 months, according to the Philippine Statistics Authority.
The June inflation print came in below the median forecast of 6.6% in a recent poll of analysts, but within the central bank's projection of 6%-7% for the month. As a result, this was the slowest headline inflation in three months, or since 4.1% in March.
According to the data, inflation in transport cooled to 12.8% in June from 16.2% in May, while food and nonalcoholic beverages eased to 5.2% from 5.7%. Local fuel retailers cut the price of gasoline by as much as P7.50 per liter and diesel by as much as P21.19 per liter last month, leading to lower inflation for gasoline and diesel.
Food inflation cooled amid lower meat and fish prices, as easing oil costs helped boost fishing activity in the country. The price of meat products declined at a faster pace of -4.2% in June from the 2.5% drop a month ago. Inflation for cereals and cereal products slowed to 12.1% from 12.6%, while fish and other seafood eased to 7.8% from 8.8%.
The price of regular milled rice slipped by 2.67% to P49.67 a kilo in the second half of the month from P51.03 in the same period in May, while well-milled rice was nearly 3% cheaper at P56.15 a kilo from P57.88 in the prior month. However, higher vegetable prices due to limited supply during the off-season tempered the slowdown in headline inflation.
Core inflation, which discounts volatile fuel and food prices, bucked the headline trend as it quickened for a sixth consecutive month to 4.4% in June from 4.1% in May and 2.2% last year. This matched the December 2023 reading and was the fastest pace in 31 months or since 4.7% in November 2023.
The Philippine central bank said still elevated global oil and fertilizer prices continue to feed into the cost of fuel and food in the Philippines, showing "inflationary pressures remain strong." Rising core inflation indicates broadening price pressures and second-round effects, including higher inflation expectations.
The BSP has raised its benchmark rate by a total of 50 basis points since April, bringing it to 4.75%. The central bank said the latest local and international developments, particularly in the oil market, will guide their decision for their next monetary policy review on Aug. 27.
ING Regional Head of Research for Asia-Pacific Deepali Bhargava noted that looming inflationary risks from the recent wage hike and the upcoming El Niño season give the BSP reason to continue tightening. Chinabank Research also sees a third straight BSP rate hike in August as the faster core inflation reflects that the Middle East war's impact on energy prices is "becoming more entrenched."
HSBC Global Investment Research Senior ASEAN Economist Aris D. Dacanay expects the BSP to be more hawkish and deliver 75 basis points more in hikes by end-2026. Citigroup, Inc. (Citi) said moderating headline inflation and prospects of gradual economic recovery by the second half of the year signal weaker threats of stagflation for the Philippines, although risks remain.
