While consumer price increases moved at a steady pace in October, the Bangko Sentral ng Pilipinas (BSP) said potential tariff hikes on imported rice and a possible jump in power costs could trigger faster price movements in the coming months.

“Potential electricity rate adjustments and possible increases in tariffs on rice imports could add some upward pressures,” the BSP said in a Nov. 5 statement.

This comes as the inflation rate held steady at 1.7 percent last month, matching the pace seen in September, reflecting the pull that housing-related costs exerted on the slowdown in food price increases.

Despite the looming risks, the BSP has forecast full-year average inflation to clock in below two percent—the lower end of the government’s target range, which has four percent as the upper end.

“Inflation is projected to average below the low end of the target range in 2025, primarily due to the easing of rice prices in previous months,” the central bank said. October headline inflation was also within the BSP’s month-ahead forecast range of 1.4 to 2.2 percent.

For the next two years, inflation is still seen settling within the government’s target band.

“Nonetheless, the risks to the inflation outlook are limited as price pressures are expected to ease amid stabilizing global commodity prices,” the BSP noted.

Business confidence has also taken a hit due to governance concerns related to public infrastructure spending, which the BSP said is dimming the Monetary Board’s (MB) outlook for the country’s output growth.

It can be recalled that the BSP, citing these concerns, decided to surprise the market with another key interest rate cut to 4.75 percent in October—the lowest level in three years.

BSP Governor Eli M. Remolona Jr. has also signaled further easing through 2026.

The central bank’s 2025 gross domestic product (GDP) growth forecast was also reduced to below the lower end of the 5.5- to 6.5-percent government target for the year.

Businesses’ downbeat outlook likewise prompted the BSP to lower its 2026 growth projection to 5.3 percent, below the downscaled target of six to seven percent.

HSBC Association of Southeast Asian Nations (ASEAN) economist Aris Dacanay said the unexpected stability in consumer prices might have boosted the central bank’s confidence to carry on with further easing in December.

“We think October inflation plus the clarity over rice policies strengthen the case for a December rate cut by the BSP,” Dacanay said.

Dacanay said the Marcos Jr. administration’s economic team will propose a flexible tariff regime, “wherein the tariff rate is increased if international rice prices go down, and vice versa.”

“If successfully implemented, rice will neither be inflationary nor deflationary to the overall consumer price basket, as any price adjustments in rice internationally will just be offset by a change in tariff rates,” he added.

This setup, Dacanay said, should give the BSP the confidence to reduce the key interest rate further to 4.5 percent by year-end.

“With no issues in inflation, monetary policy has the runway to pump the economy to hopefully offset the fiscal fallout brought by a sharp drop in public infrastructure spending,” he said.