The drop in Philippine inflation reflects weaker demand as consumers' pockets hurt by high prices and interest rates dry up, according to Deutsche Bank Research.

Citing the over four-year low headline rate, Deutsche Bank's economist for the Philippines Junjie Huang said in an Oct. 4 report that "if not already clear, September's report shows that domestic demand, especially consumption, is continuing to slow."

Deutsche Bank earlier lowered its inflation projections for the Philippines to 3.5 percent for 2024 (from 3.6 percent previously) and three percent for 2025 (from 3.5 percent) on the back of rice import tariff cuts plus high-base effects.

Huang noted that the lower-than-expected September inflation was driven by food and transportation, whose prices soared in the past.

"Much of the growth in 2024 has been from strong public investment and government spending: it contributed 2.2 percentage points (ppts) toward the six-percent first-half 2024 gross domestic product (GDP) growth, compared to 0.6 ppt in 2023's 5.5-percent GDP growth. On the other hand, private consumption, the mainstay of the economy (about 70 percent of GDP), has been gradually declining from its peak growth of 10 percent in the first quarter of 2022 to 4.6 percent in the second quarter of 2024," Huang pointed out when asked by Manila Bulletin to elaborate on slowing consumer spending.

In particular, private consumption growth during the second quarter of this year was the slowest in 24 years "amid elevated price levels and borrowing costs, which have weighed on consumer sentiment particularly among the middle- and lower-income population," Huang added.

Also, "private investment growth has been hit by a double whammy since 2020, first with the onset of the pandemic and ensuing weak business confidence, then with an elevated real rate environment domestically that has surpassed that of the US since late 2023," Huang said, citing that private-sector investments in construction and durable equipment have "come down noticeably since 2022."

Amid tempered domestic consumption, Huang said Deutsche Bank Research expects the Bangko Sentral ng Pilipinas (BSP) to cut key interest rates by 25 basis points (bps) in each of its forthcoming monetary policy meetings, as Governor Eli M. Remolona Jr. had also signaled.

Deutsche Bank forecasts Philippine GDP to expand by 5.8 percent this year, missing the government's six- to seven-percent growth target.