Inflation Update: Easing cycle to continue

Philippine headline inflation accelerated to 1.8% year-on-year (YoY) in December. Full-year 2025 inflation settled at 1.7%, sitting below the Bangko Sentral ng Pilipinas’ (BSP) 2.0-4.0% full year target.

Key points

• Full-year average inflation for 2025 settled at 1.7%, below the BSP’s 2.0%-4.0% target and the country’s lowest annual average inflation rate since 2016.
• The food and non-alcoholic beverages basket was the primary driver behind the acceleration in December, accounting for nearly 98% of the uptrend. This was due in large part to faster inflation in vegetables, tubers, etc., attributed to seasonal holiday effects and persisting supply-side pressure from recent typhoons.
• Core inflation, which excludes volatile food and energy items, maintained its pace from the previous month at 2.4%.

What’s next

• Metrobank forecasts that headline inflation will pick up to 3.3% in 2026, primarily due to low base effects from last year, while settling within the BSP’s 2-4% target. In addition, stronger demand-side pressures and higher import global commodity prices present upside risks to inflation.
• Subdued inflation, coupled with soft demand in 2026, keeps the door open for the BSP to reduce policy rates further this year.
• Metrobank forecasts that the BSP will continue with the easing cycle and deliver a cumulative 50 basis points worth of cuts this year. This will bring the target reverse repurchase (RRP) rate down to 4.00% by year-end.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)

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