June inflation likely eased for second month in a row — poll

By Katherine K. Chan, Reporter

PHILIPPINE INFLATION likely eased for a second straight month to a three-month low in June as lower oil and rice prices offset higher electricity rates, analysts said.

A BusinessWorld poll of 18 analysts yielded a median estimate of 6.6% for June inflation, slower than 6.8% in May but faster than 1.4% a year ago.

This falls within the Bangko Sentral ng Pilipinas’ (BSP) 6%-7% projection for the month.

If the median estimate holds true, this would be the second month in a row that inflation cooled. It would also be the slowest headline print in three months or since the 4.1% in March.

However, June may also mark the fourth consecutive month that it breached the central bank’s 2%-4% target.

The Philippine Statistics Authority will release the June inflation report on Tuesday (July 7).

Radhika Rao, a senior economist at DBS Group Research, said the headline print likely cooled to 6.6% amid lower global and domestic energy prices as well as cheaper key food items.

“We expect Philippines’ inflation to moderate to 6.6% (year on year) in June 2026 from 6.8% in May, but stay above the 2-4% policy target,” she said. “Price pressures likely slowed on the back of a decline in global oil benchmarks (consequently domestic pump prices) and easing food (rice, meat, etc.).”

In June, global oil prices eased below the $100-per-barrel level seen during the height of the Middle East war. It dropped by 21% from 19% in May, marking the steepest monthly decline since the 55% seen in March 2020, according to Reuters.

Local fuel retailers also cut pump prices by as much as P7.50 per liter for gasoline and up to P21.19 per liter for diesel, while kerosene prices posted a net increase of P1.98 per liter during the month.

“However, the pace of disinflation is decelerating sharply: May’s outsized -19.6% (month-on-month) pump price decline narrows to an estimated -5.9% in June, as most of the rollback room may have already been realized,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. noted.

Rice prices, alongside other key food items, also continued to decline month on month in June, which helped ease pressure from the heavily weighted food and nonalcoholic beverage index.

“Despite El Niño conditions, rice prices also fell month on month for a second straight month, likely reflecting relief from last year’s import ban,” China Banking Corp. Chief Economist Domini S. Velasquez said. “Other key food items, including meat, fish, fruits, eggs, and sugar also posted declines.”

A kilo of regular milled rice averaged P49.67 in the second half of the month, down 2.67% from P51.03 in May but up 16.79% from P42.53 in the same period last year, while well-milled rice was also sold for an average of P56.15 per kilo, nearly 3% lower than P57.88 in the prior month but 14.29% costlier year on year from P49.13.

Meanwhile, the price of special rice fell by 1.9% month on month to P64.44 a kilo from P65.69 but climbed by 10.1% from P58.53 a kilo a year ago.

OFFSETTING FACTORS
Meanwhile, four of the 18 analysts polled by BusinessWorld expect a slightly faster headline clip in June, citing costlier electricity and vegetables as well as the lagged spillover effects of high oil prices in recent months.

For Alvin Joseph A. Arogo, chief economist and research head of the Philippine National Bank, inflation likely hit 7% last month, “mainly due to the increase in prices of electricity and vegetables.”

Last month, Manila Electric Co. raised the overall electricity rate by 14.88 centavos per kilowatt-hour (kWh) to P14.4833 per kWh from P14.3345 per kWh. This was equivalent to a P30 increase in the total monthly electricity bill of households consuming 200 kWh.

University of Asia and the Pacific economist Marco Antonio C. Agonia said the year-on-year uptick in the cost of rice and other commodities could keep inflation past the BSP’s tolerance range.

“Oil price normalization from the productive Middle East peace talks and lower food prices for select items may have contributed to the slight easing,” he said. “However, elevated rice and vegetable prices compared to a year ago, along with utilities adjustments and second-round inflation effects, will likely keep inflation above target again.”

Mr. Agonia projects headline inflation to settle at 6.5% in June.

“In addition, lagged pass-through effects from earlier shocks, including peso weakness and elevated import costs, continued to support price pressures across goods and services,” Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion also said.

The local unit remained above the P61-a-dollar mark for two straight months, averaging P61.2513 versus the greenback in June. However, it strengthened by 23 centavos to close at P61.36 on June 30 from its P61.59 finish on May 29.

Mr. Asuncion also noted rising inflation expectations as households turn cautious, which could keep core inflation sticky.

For Chinabank’s Ms. Velasquez, the core print may have quickened to stay above the central bank’s target for the second consecutive month.

“Meanwhile, core inflation likely rose to 4.3%, breaching the BSP’s 4% tolerance ceiling for the second month,” she said. “This reflects price pressures in services, with education costs also picking up amid the back-to-school season.”

LOOMING PRICE RISKS
Meanwhile, BSP Governor Eli M. Remolona, Jr. said they are monitoring El Niño conditions and its potential effects on consumer prices.

The central bank projected inflation to average 6.4% this year, which Mr. Remolona earlier noted has yet to account for the expected impact of the El Niño event.

He told reporters last week that the upcoming wage hike poses a “significant” inflationary pressure but is unlikely to warrant an outsized policy rate hike.

The Department of Labor and Employment announced last week a dual tranche P85 rise in the minimum wage in Metro Manila, with a P60 hike set this month and the other P25 increase to come in January 2027.

Aris D. Dacanay, senior ASEAN economist at HSBC Global Investment Research, noted that the spillover effects of energy shocks, high fertilizer prices, and the approaching El Niño season could amplify one another and likely drive food prices higher.

“Looking ahead, we expect inflation to accelerate further in the second half of the year as the energy shock feeds through into food prices,” he said. “The lagged impact of fertilizer prices on food supply will likely come into the picture in the next few months, aggravating the potential damages the El Niño season may have on global food supply.”

For Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, a softer June inflation could signal waning inflation risks, giving the BSP reason to cut its tightening cycle short.

“If we’re right about another deceleration in headline inflation, then this should give the Monetary Board more evidence that the big jump in inflation since the war started is now firmly in the rear-view mirror, potentially then opening the door for the end of its mini-tightening cycle, which is becoming more costly given the still-weak state of the economy,” he said.

However, Maybank Investment Bank economist Azril Rosli said expectations of slower inflation last month will unlikely deter the BSP from tightening further to anchor inflation expectations amid emerging price pressures.

“With inflation remaining well above target and core inflation continuing to rise, the BSP is likely to maintain a higher-for-longer monetary policy stance to ensure inflation expectations remain anchored,” Mr. Rosli said.

“We continue to expect the policy rate to reach 5% by end-2026 and 5.25% by end-2027, although future policy decisions will remain data dependent,” he added.

Last month, the Monetary Board tightened for a second straight meeting, raising the benchmark interest rate by 25 basis points to 4.75%.

Mr. Remolona has left the door open for further “measured” hikes to temper broadening second-round price effects of the energy shocks.

The Monetary Board has three more rate-setting meetings this year on Aug. 27, Oct. 22, and Dec. 17.