BSP vows action to bring inflation back to target

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) said it is prepared to take the necessary policy action to bring inflation back to its three-percent target, even after price growth eased more than expected in May.

Headline inflation slowed to 6.8 percent in May from 7.2 percent in April, below market expectations and the BSP’s forecast range of 7.1 to 7.9 percent for the month.

“The BSP will take necessary actions to ensure inflation returns to its three-percent target, in keeping with its primary mandate to ensure price stability,” the central bank said.

The lower May print mainly reflected the decline in transport-related costs following the gradual reduction in domestic pump prices. Lower prices of key food commodities, particularly rice, also contributed to the slowdown.

Despite the easing, the BSP said the inflation environment remains challenging as price pressures are expected to stay elevated over the medium term.

“Nonetheless, the rapidly evolving situation in the Middle East still warrants close monitoring,” the BSP said.

“The inflation environment continues to be challenging with the BSP projections indicating an elevated inflation path. Average headline inflation is seen to breach the four-percent tolerance ceiling for both 2026 and 2027,” it added.

Inflation averaged 4.5 percent from January to May, above the BSP’s three-percent target for the year.

The BSP said inflation expectations have also risen further, “heightening the risk of de-anchoring from the three-percent target due to more persistent inflation pressures and broadening price pressures.”

Looking ahead, the Monetary Board said it would be guided by incoming data during its June 18 policy meeting.

The BSP said it would reassess the macroeconomic outlook to incorporate the May inflation print, first-quarter national accounts and key domestic and global developments affecting the country’s inflation and growth prospects.

BPI lead economist Emilio Neri Jr. said policy tightening remains warranted despite the softer inflation print, citing significant upside risks from possible second-round effects, higher fertilizer costs and the risk of El Niño disrupting agricultural production.

“Despite the slower inflation print in May, upside risks remain significant. Second-round effects have yet to fully materialize, as the absence of fare adjustments and an official increase in the minimum wage limited the pass-through of higher costs to consumers,” Neri said.

“Inflation could accelerate further once businesses begin incorporating these additional costs into their pricing,” he said.

Neri said current food prices may not yet fully reflect the impact of the Middle East conflict, as higher fertilizer costs could affect crops currently being planted and scheduled for harvest in the second half.

He also warned that a severe El Niño could hurt agricultural output, particularly rice, which accounts for nearly nine percent of the consumer basket.

“The softer inflation print should be viewed less as an opportunity to delay the rate hikes and more as a chance for the BSP to demonstrate its commitment to restoring price stability and counter perceptions that it is behind the curve on inflation,” Neri said.

He said tighter monetary policy could weigh on growth, but the economic damage from persistently elevated inflation may be more severe.

“We therefore expect a rate hike of at least 50 basis points in the next policy meeting,” he added.

Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., said the May inflation print presents a “mixed but manageable story.” He said the latest print should keep the BSP cautious, but does not necessarily call for aggressive tightening.

“It means we should be concerned, but not alarmed. For policy, this keeps the BSP cautious, with no urgency to tighten aggressively, but no quick pivot to easing either,” Ravelas said.

“The practical takeaway is stay disciplined: investors should remain selective, businesses should prepare for lingering but easing cost pressures and policymakers should avoid overreacting to short-term spikes,” he added.