Headline inflation in the Philippines fell to 1.4 percent in April 2023, down from 1.8 percent in March, marking the lowest inflation rate since late 2019. This decline continues a trend of inflation rates below the Bangko Sentral ng Pilipinas (BSP) target range of two to four percent for the second consecutive month.

The downward trend in inflation has largely been attributed to decreasing food prices, particularly rice.

Economists are adjusting their projections and policy expectations in response to this significant slowdown in the consumer price index (CPI).

Analysts from Nomura have revised their CPI forecasts downwards, anticipating inflation to reach 1.8 percent for 2025 (a reduction from 2.2 percent) and 2.7 percent for 2026 (down from 2.9 percent).

These adjustments are based on factors including a negative output gap, low oil prices, and lower tariffs on rice.

Nomura Global Markets Research has indicated that the BSP may implement additional rate cuts totaling 75 basis points this year, which would bring total reductions in the current cycle to 175 basis points, one of the most substantial in the region.

The economists assign a high probability to a 25 basis point cut at the upcoming monetary policy meeting on June 19, projecting a terminal policy rate of 4.75 percent.

HSBC's ASEAN economist Aris Dacanay echoed similar sentiments, noting that muted price pressures create considerable room for the BSP to support economic growth.

Dacanay highlighted that low inflation could bolster domestic consumption, vital for the Philippine economy amidst uncertainties concerning global trade and the economic outlook.

HSBC anticipates that the BSP could reduce the policy rate to five percent by the fourth quarter of 2023, with potential action expected in August.

However, Dacanay noted that persistent trends could lead to a deeper rate cut to 4.75 percent by the end of the year.

He also pointed to external factors, such as modifications in Chinese exports and a moderate global economic landscape, contributing to stable domestic prices.

In a statement on the broader impact of disinflation, Jun Neri, lead economist at the Bank of the Philippine Islands, emphasized that the sustained drop in rice prices has alleviated financial burdens on households, which could enhance both essential and discretionary spending.

Neri, however, cautioned about external risks, particularly from the United States, where changes in tariff policies might influence inflation rates and the Federal Reserve's monetary policy.

Neri advised that aggressive cuts to the policy rate could potentially expose the Philippine economy to sudden shifts in US monetary policy.

Moody's Analytics economist Sarah Tan predicted that inflation will remain close to the lower bound of the BSP’s target across 2025, bolstered by improved food supply conditions, tariff changes, and a subdued trade environment that limits price pressures.

Tan projects at least one more 25 basis point rate cut in the latter half of 2025, despite recent increases in utility inflation related to the upcoming elections.

The BSP’s Monetary Board is scheduled to convene on June 19 to assess its monetary policy moving forward.