Inflation could overshoot 2-4% range in second half — BSP

The Bangko Sentral ng Pilipinas (BSP) said inflation could overshoot the 2-4% target range in the second half of this year amid base effects.

In its latest Monetary Policy report, the central bank said annual inflation is likely to settle within the 2-4% target band from this year to 2026 amid declining rice prices.

“However, inflation could exceed the target range in the latter part of 2025, primarily due to base effects from easing commodity price pressures in the corresponding period of 2024,” it said.

“Inflation is then projected to move closer to the midpoint of the target range in 2026, supported by an expected moderation in global commodity prices,” it added.

The BSP’s baseline forecasts for inflation are at 3.5% for 2025 to 2026. Accounting for risks, inflation could reach 3.7% in 2026.

In February, the consumer price index (CPI) sharply slowed to 2.1%, bringing headline inflation to 2.5% in the first two months.

For this year, inflationary pressures could come from “higher global oil and non-oil prices, peso depreciation, and recent above-expectation inflation readings,” the BSP said.

However, inflation could breach the 2-4% target range if crude oil prices rise, it said.

BSP estimates show that if crude oil prices average above $100 per barrel, inflation could hit 4.1% this year and 4.8% next year.

Based on the latest Development Budget Coordination Committee macroeconomic assumptions, Dubai crude oil is seen to range from $60 to $80 per barrel this year.

However, the BSP reiterated that risks to the inflation outlook have remained “broadly balanced.”

“Upside risks include potential increases in electricity rates, transport charges, and pork prices,” it said.

According to the BSP’s risk matrix, there is a high probability for a rise in pork prices and a low probability for elevated transport and electricity costs.

“Conversely, the main downside risk stems from the spillover effects of lower tariffs on imported rice to domestic rice prices.”

Rice inflation further decreased to 4.9% in February from the 2.3% drop in January. This was the lowest rice inflation print since the 5.7% contraction in April 2020.

Rice prices are seen to decline further after the Agriculture department declared a food security emergency on rice, as well as lowered the maximum suggested retail price of 5% broken imported rice.

According to the BSP’s calculations, the likelihood of inflation settling within target this year remains above 50%.

“For 2026, the probability of inflation remaining within the target range has increased to nearly 50%, with a corresponding decrease in the likelihood of inflation exceeding the upper limit of the target range.”

Inflation expectations

Meanwhile, inflation is expected to remain within the Philippine central bank’s 2-4% target from this year until 2027, according to economists surveyed by the BSP.

Analysts’ average inflation estimates were unchanged at 3.2% for this year and 3.3% for 2026, according to the BSP’s Survey of External Forecasters.

Economists also expect inflation to settle at 3.4% in 2027, still within the target band.

“Forecasters identify several potential upside risks to the inflation outlook. These include the effects of geopolitical tensions and adverse weather conditions on commodity prices, particularly oil.”

“Other factors cited are base effects, uncertainties in international trade, potential upward adjustments to utility rates and transport charges, and proposed minimum wage increases.”

The analysts surveyed assigned a “high probability” of inflation remaining within target over the forecast horizon.

This year, economists expect an 83.2% probability that inflation will settle within 2-4% versus the 15.4% chance that it will exceed the target band.

“The likelihood of inflation falling within the target range is estimated at 84.4% for 2026 and 76.5% for 2027.”

Meanwhile, the respondents expect further policy easing by the central bank this year.

“Regarding monetary policy expectations, most analysts anticipate a loosening of the BSP’s stance in 2025, with projections ranging from 50 to 100 basis points (bps) of easing.”

After keeping rates steady in February, BSP Governor Eli M. Remolona, Jr. said a rate cut is still “on the table” at the Monetary Board’s meeting in April, signaling “a few more” rate cuts for the rest of the year.

The central bank unexpectedly kept rates steady at its February policy review, opting to keep the target reverse repurchase rate (RRP) at 5.75%. The BSP had delivered three straight 25-bp cuts at each of its meetings in August, October and December in 2024.

“Views on the 2026 target RRP rate are more diverse, spanning from a 75-bp reduction to no change. For 2027, a majority of respondents foresee the BSP continuing on an easing path.” — Luisa Maria Jacinta C. Jocson