Philippine Inflation Update

By Karen Lema and Mikhail Flores

MANILA (Reuters) – Philippine annual inflation has increased at its slowest rate in over four years as of September, primarily due to a modest rise in food prices and decreased transport costs. This development provides the central bank with the opportunity to further reduce interest rates.

The consumer price index (CPI) rose 1.9% in September compared to a year ago, the smallest annual rise since May 2020. This figure is a decrease from the previous month’s 3.3% and below the 2.5% anticipated in a Reuters poll.

According to Finance Secretary Ralph Recto, inflation could stabilize around 3.2% this year, within the central bank's target range of 2% to 4%. He stated, "This gives the BSP more room to be aggressive in its monetary policy easing to help the economy grow faster and support the government in increasing its revenue collections."

The BSP indicated that inflation is expected to trend downward in the coming quarters due to easing supply pressures from food and base effects resultant from last year's higher consumer prices.

The central bank assessed that the risk balance for the inflation outlook leans towards the downside for 2024 and 2025, with a slight upside tilt for 2026. Year-to-date average inflation now stands at 3.4%.

Core inflation, excluding volatile food and energy prices, also declined to 2.4% in September from 2.6% in August.

The slowdown in food inflation was largely attributed to a marked decrease in rice price increase to 5.7% from 14.7% in August, influenced by base effects and reduced tariffs.

The central bank had reduced its policy rate by 25 basis points to 6.25% in August, marking its first reduction in nearly four years. A meeting is scheduled for Oct. 16 to discuss future interest rate directions. BSP Governor Eli Remolona mentioned the possibility of two more 25 basis point cuts, one in October and another in December, as inflation continues to ease.