Philippine Inflation Slows in June, Paving Way for Possible Rate Cut

The Philippines’ inflation rate paused its four-month upward trend in June, reinforcing expectations that the central bank might ease its monetary policy as early as August.

According to the Philippine Statistics Authority, consumer prices increased by 3.7% year-on-year in June, a deceleration from May’s 3.9% and below the 3.9% forecast by economists in a Bloomberg survey. This slowdown is attributed to more modest increases in utility and transportation costs.

June’s inflation rate falls within the Bangko Sentral ng Pilipinas’ (BSP) target range of 2% to 4%, contrary to earlier expectations of a second-quarter breach. Rice inflation also showed signs of easing, dropping to 22.5% from May’s 23%, with further cooling anticipated as lower import tariffs take effect.

Dan Roces, chief economist at Security Bank Corp., noted, “There’s a higher chance of an August rate cut, with the peso – which seems to be ‘behaving’ – a part of the decision point.” Following the inflation announcement, the Philippine stock index rose by as much as 0.8%, while the peso remained stable.

The June data bolsters BSP Governor Eli Remolona’s recent indication that an August rate cut is increasingly probable. This comes amid signs of weakening domestic demand, exacerbated by the benchmark interest rate being at its highest in 17 years.

In a statement released after the inflation report, the BSP affirmed its commitment to maintaining monetary policy settings that support stable prices conducive to sustainable economic growth, highlighting ongoing vigilance over domestic economic conditions.

The central bank also projected that inflation will remain within the target range for this year and the next, with price expectations well-anchored and the balance of price risks shifting downward. Nonetheless, it cautioned about persistent pressures from non-rice food items, transportation, and power costs.

This latest inflation data strengthens the case for a potential rate cut in the coming months, as the BSP navigates the delicate balance between fostering economic growth and ensuring price stability.