Analysts project a favorable outlook for inflation in the Philippines, with forecasts indicating a downward trend through 2025. Headline inflation recorded a decrease to 1.3 percent in May, leading economists to predict an average inflation rate of 1.8 percent for the year, significantly below the Bangko Sentral ng Pilipinas (BSP)’s target range of two to four percent.

Nomura economists, Euben Paracuelles and Nabila Amani, expect inflation to be more benign, starting at 1.3 percent in the third quarter, down from a year-to-date level of two percent.

They anticipate a slight rebound to a two percent average towards the end of the year, attributing this trend to a negative output gap, lower global crude oil prices, and government initiatives aimed at stabilizing rice prices.

Their analysis suggests that the easing of inflation provides an opportunity for the BSP to consider further monetary easing, with a projection of 75 basis points of rate cuts, potentially lowering the policy rate to 4.75 percent.

In a similar vein, Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, also forecasts inflation to remain below the BSP’s target, maintaining the average at 1.8 percent for the year.

Chanco identifies the slowdown in housing and utilities inflation, along with a decline in transport prices, as crucial factors driving the overall downtrend in inflation.

However, he cautions that food inflation could increase, particularly for wholesale food prices as upstream pressure eases.

He notes that the headline inflation may rise in the coming months, indicating signs of a bottoming out in food inflation, reflected in the unchanged 0.9 percent reading in May. Despite this, he believes that food prices are unlikely to spike drastically until mid-2026.

HSBC economist for ASEAN, Aris Dacanay, corroborates the outlook with a focus on external factors, such as disinflationary trends from China, persistently low global oil prices, and falling rice prices, which he identifies as significant drivers of subdued inflation levels.

Dacanay suggests the BSP may take a pause in its easing cycle during June while observing further developments regarding proposed US tariff measures.

He notes that the Philippine economy is relatively insulated from trade disruptions, giving the central bank room to adopt a measured approach.

The potential for policy rate cuts in June is viewed as more plausible following unexpected growth figures for the first quarter, with the Philippine economy expanding by 5.4 percent, slightly above the previous quarter’s growth of 5.3 percent but still below market expectations.

Furthermore, impending minimum wage adjustments and potential changes to rice tariffs could present upside risks to inflation, affecting future rate decisions by the BSP, as highlighted by Dacanay.

Metrobank’s chief economist, Nicholas Antonio Mapa, emphasizes the implications of sustained low inflation levels driven by reduced food and utility costs alongside transport deflation.

He states that these factors maintain the likelihood of BSP rate cuts during the June 19 meeting, suggesting that the macroeconomic environment remains supportive of accommodative monetary policy measures.

As inflation remains significantly below the BSP’s set targets, the upcoming decisions by the central bank are under close scrutiny.

With inflation expectations remaining anchored, the BSP appears poised to adopt a more accommodative policy stance, aimed at supporting economic growth while managing inflationary pressures.