The inflation rate, reflecting the increase in consumer prices, is expected to slow down in the coming months, aligning with forecasts from the government and the Bangko Sentral ng Pilipinas (BSP).
In a commentary, Dutch bank ING said that headline inflation will retreat to the target of two percent to four percent in August and will further decline in the following months as the rice tariff reductions take effect.
The country’s inflation rose to 4.4 percent in July, the fastest this year so far, from 3.7 percent in the previous month.
“Philippine inflation is likely to slow substantially in the months ahead as rice prices at worst stay elevated but fail to deliver a further boost to inflation as last year's price increases drop out of the year-on-year comparison,” ING said.
“At best, some of the recent rice tariff reductions will get passed on to the consumer, taking inflation even lower for a while before it heads higher,” it added.
The bank expects the country’s inflation rate to be around 3.5 percent this year, noting that “a terminal rate for BSP policy rates could be around 4.5 percent to 5.0 percent, a further 125 to 175 basis points lower than today.”
On the other hand, Oxford Economics said the headline inflation may have already peaked and would gradually “trend down over the rest of this year as lower import tariffs on rice feed through.”
“The rate cut could also bring some downward pressure on the Philippine peso, despite the recent appreciation against the US dollar,” it said.
Think tank Capital Economics also said that inflation will decline in August due to base effects and remain low throughout the rest of the year.
All institutions also hinted that BSP would further reduce policy rates in its monetary board meetings in October and December.
“If we are right, this should give the central bank the confidence it needs to loosen policy further over the coming months,” Capital Economics said.
“Overall, we are expecting a 25bps cut in the BSP’s two remaining meetings of the year in October and December. Our forecasts are more dovish than the consensus,” it added.
On the other hand, ING sees the central bank “tracking the Fed one-for-one in the coming months as the Fed finally begins its own easing cycle – depending on how the PHP behaves. And further easing looks probable in 2025.”
Despite this, ING said it is not optimistic about growth over the rest of the year, forecasting a growth of 5.3 percent for 2024, but hints at lifting its 5.6 percent forecast for 2025 to recognize BSP's supportive policy shift.