The Bangko Sentral ng Pilipinas (BSP) is expected to extend its monetary tightening cycle to a peak of 5.5 percent, according to Goldman Sachs Group Inc., as sticky underlying price pressures overshadow the recent cooldown in headline inflation.

While headline inflation decelerated to 6.4 percent in June from 6.8 percent in May and a peak of 7.2 percent in April, the respite may prove temporary. Goldman Sachs economists Chris Poh and Danny Suwanapruti noted in a research report that while falling fuel and food costs drove near-term relief, the broader inflation environment remains less benign.

Core inflation, which strips out volatile consumer basket items, jumped to 4.4 percent from 4.1 percent the previous month—twice the 2.2 percent recorded in June 2025.

According to Goldman Sachs, underlying inflation in June was stronger than expected as momentum picked up, with other indicators mirroring more widespread price pressures.

“This suggests that underlying price pressures remain persistent, despite the near-term relief from lower energy prices,” the economists said.

As such, Goldman Sachs continues to anticipate that the BSP will increase the benchmark rate by a cumulative 75 basis points (bps) from the current 4.75 percent.

This expectation is reinforced by the central bank’s own assessment that higher core inflation is feeding into the broader economy. “Rising core inflation indicates broadening price pressures and second-round effects, including higher inflation expectations,” the BSP stated.

Aligning with this hawkish outlook, HSBC Global Investment Research pointed out that second-round effects may now dominate the monetary authorities’ attention following the recent approval of a historic-high ₱85 wage hike in Metro Manila.

BSP Governor Eli M. Remolona Jr. earlier noted that the capital region’s wage adjustment is an unusual shock that will exert significant pressure on domestic inflation, though he indicated a hyper-aggressive policy response remains unlikely.

Aris Dacanay, HSBC’s senior economist for the Association of Southeast Asian Nations (ASEAN), noted that while the direct impact of the wage hike might be small, “it risks setting a precedent for other regions to follow suit.”

“For monetary policymakers, spillover effects carry importance, especially given the fact that core inflation continues to rise,” Dacanay added, emphasizing that the central bank will likely maintain its stance until price stability is secured. He expects the BSP to raise the benchmark rate by 75 bps by year-end.

Other analysts similarly warned that the fight against inflation is far from over. United Overseas Bank (UOB) analysts Julia Goh and Loke Siew Ting pointed out that accelerating core inflation in June signals "persistent domestic demand pressures.”

Goh and Ting further cautioned that the inflation outlook “remains subject to several key risks, including the outcome of ongoing US-Iran peace negotiations, potential El Niño-related supply disruptions, minimum wage hikes, and volatility in the peso.”

Bank of the Philippine Islands (BPI) lead economist Emilio S. Neri Jr. joined the chorus, asserting that the “tightening cycle [is] not over despite lower headline inflation.”

Neri shared UOB’s concerns regarding the threat posed by El Niño, noting that extreme weather conditions typically reduce agricultural output and drive food prices higher. Like UOB, he also cited the need to cushion the local currency against the US dollar.

According to Neri, monetary tightening by the BSP “may help alleviate the pressure on the country’s international reserves, which have declined amid the peso’s depreciation.”

Per the BSP, the Philippines’ US dollar reserves plunged to a 16-month low in May but rebounded in June to reach $104.8 billion as the government’s foreign currency deposits with the central bank outpaced its withdrawals.