Inflation in August may have eased to as low as 5.5 percent, potentially hitting a four-month low, on the back of lower electricity rates and a stronger peso during the month.

However, weather-related risks threaten to stoke price growth. The Bangko Sentral ng Pilipinas (BSP) projected that August inflation could reach an upper bound of 6.5 percent, 0.3 percentage point (ppt) higher than the June print.

“Upward price pressures for the month are likely to be driven by higher rice, vegetable, fruit, and fish prices, partly due to unfavorable weather conditions, and elevated domestic fuel costs,” the BSP said in an Aug. 28 statement.

“These upward pressures are expected to be mitigated by lower prices of meat, as well as lower electricity rates and the peso appreciation,” the central bank added.

Prior to weakening in the second half of August, the peso opened the month strong, hovering around 60 to the United States (US) dollar—levels last seen on Aug. 10, when the currency pair traded at 60.705.

Headline inflation slowed to a three-month low of 6.2 percent in July from 6.4 percent in June, after peaking at a more than three-year high of 7.2 percent in April. Core inflation, which excludes volatile food and energy items, also eased to 4.2 percent from 4.4 percent in June.

The BSP noted that it remains vigilant against geopolitical tensions in the Middle East and extreme weather events like El Niño.

Monetary authorities have been working to stabilize domestic prices, which have fluctuated since conflict flared in the Middle East over five months ago, disrupting shipping through the Strait of Hormuz.

To counter these pressures, the BSP raised key borrowing costs in three consecutive policy meetings, including a rate hike last Thursday, Aug. 27. The move aimed to address oil-driven price volatility, the potential impact of a record-high ₱85 wage increase, and inflation risks from El Niño, which is expected to peak in the fourth quarter of 2026.

BSP Governor Eli M. Remolona Jr. clarified that the latest rate hike was a proactive measure to get ahead of inflation risks before they materialize. Whether the five percent policy rate proves sufficient will depend heavily on how risks around wage adjustments and El Niño unfold in the coming months.

While oil price volatility remains a concern, Remolona noted that other emerging risks have taken priority in the BSP’s policy calculations, stating, “Other risks are bigger.”

In its latest policy meeting, the BSP revised its average inflation forecast for 2026 downward to 6.1 percent from 6.4 percent.

However, it raised its 2027 forecast to 5.4 percent from 4.5 percent—keeping it well above the target band of 2.0 to 4.0 percent. Headline inflation is expected to return near the 3.0 percent target midpoint by 2028.

Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., holds a cautious outlook for August price growth, forecasting inflation at 6.1 percent. He suggested recent policy tightening and improving supply conditions are “gradually gaining traction” and moving inflation onto a downward trend over the near term, offering relief to consumers and businesses.

However, Ravelas noted that his estimate, still well above the 4.0 percent target ceiling, indicates that underlying price pressures remain elevated and “the fight against inflation is far from over.”

“More importantly, while inflation may ease in the near term, the combined impact of the recent wage hike, the potential effects of El Niño on food supply, and ongoing geopolitical tensions in the Middle East and the Russia-Ukraine conflict could pose upside risks to inflation in the coming months,” Ravelas said.

He added that these factors will force the BSP to tread carefully to prevent secondary price spikes, noting that the primary challenge for the government is ensuring that moderating inflation translates into a sustainable recovery in Filipinos’ purchasing power.