Philippines inflation seen breaching 8% in November

CEBU, Philippines — Philippine inflation is poised to breach 8 percent in November as rising wages, higher transport fares and a weakening peso fuel broader price pressures, raising the prospect of further interest rate increases by the Bangko Sentral Ng Pilipinas (BSP), according to Bank of the Philippine Islands (BPI) lead economist Emilio S. axNeri Jr.

Consumer price growth is estimated to have accelerated to 7.7 percent year-on-year in October from 7.2 percent in September, potentially marking its fastest pace since February 2023, despite easing food supply disruptions and lower fuel prices.

In a commentary, Neri said the latest acceleration suggests that inflationary pressures are becoming more widespread and persistent, despite some relief from food supply disruptions and lower fuel prices.

The fading of the Habagat season helped ease supply constraints on rice, meat, fish and vegetables, while reductions in pump prices provided some relief on transportation costs. These gains, however, were outweighed by the pass-through effects of earlier price increases.

October marked the first full month of higher public transport fares, following increases of P1 to P2 effective Sept. 28. The P60 minimum wage adjustment in Metro Manila under Wage Order NCR-28, which took effect on Sept. 26, also raised labor costs and the risk of further price increases in labor-intensive services.

Higher take-home pay could also support household spending, adding to demand-side pressure on services inflation, Neri said.

Imported inflationary pressures compounded the situation as peso depreciation raised the cost of fuel, food imports and dollar-denominated power supply contracts.

Electricity costs also reversed their recent decline, with Manila Electric Co. raising its overall rates by about 2.2 percent in October from the previous month, following two consecutive months of reductions.

Neri expects inflation to peak in November, potentially exceeding 8% if current pressures persist.

Unlike the fuel-driven price spike in April, the current inflation cycle is increasingly being shaped by structural and second-round effects, which are less likely to reverse quickly.

Higher transport fares and wages could feed into broader price adjustments, while rising labor costs may further entrench inflationary expectations. This risk is reflected in core inflation, which reached a three-year high in September.

Additional upside risks include further peso depreciation, higher electricity distribution charges following the newly approved rate reset for Meralco, potential supply disruptions from a Super El Niño and volatile global oil prices amid geopolitical tensions in the Middle East.

The worsening inflation outlook strengthens the case for further monetary tightening, Neri said, as BSP seeks to prevent price pressures from becoming more deeply embedded in the economy.

The BSP’s 50-basis-point policy rate increase in October brought its benchmark rate to 5.5 percent. The Monetary Board also signaled its readiness to take further action if inflation risks intensify.

The peso’s depreciation adds urgency to the policy response. The currency has weakened by as much as 8.4 percent since the start of the year, reaching a record low of P64.170 against the US dollar, making it one of Asia’s worst-performing currencies.

Further weakness could amplify imported inflation, particularly through higher energy and commodity costs, increasing the need for additional interest rate increases to support the currency and anchor inflation expectations.

However, Neri cautioned that monetary policy alone would not be sufficient to address the country’s inflation challenges.

He said fiscal authorities must complement the BSP’s efforts by accelerating infrastructure spending, improving agricultural productivity, strengthening energy security and advancing governance reforms.

With economic growth increasingly constrained by supply-side weaknesses, a stronger fiscal reform agenda is needed to expand productive capacity, ease structural bottlenecks and reduce the burden on monetary policy, he added.