Looming wage surge threatens to upend Philippine inflation slowdown

A vendor organizes goods at a public market. Economists warn that the Philippines is at high risk of “stagflation,” where the prices of basic goods continue to rise even as the country’s overall economic growth begins to slow down. (Photo by Santi San Juan I MB)

Consumer price growth likely slowed for another month in June, driven by declining global oil and food costs alongside a recovering currency, according to private-sector economists.

A median forecast from regional banks and analysts projects headline inflation to have moderated to between 6.5 percent and 6.7 percent last month from 6.8 percent in May. Despite the anticipated cooling, the figure remains significantly above the Bangko Sentral ng Pilipinas’ (BSP) four percent target ceiling.

Furthermore, looming minimum wage hikes and severe weather threats are expected to keep the central bank on a hawkish path for the remainder of the year.

“Price pressures likely slowed on the back of a decline in global oil benchmarks (consequently domestic pump prices) and easing food prices (rice, meat, etc.),” DBS senior economist Radhika Rao said in a July 3 commentary.

However, DBS warned that this downward trajectory faces significant domestic headwinds. Rao noted that the relief from cheaper oil is being partially offset by rising costs for utilities and “staple perishables,” compounded by a looming surge in consumer demand.

“These cost-push pressures might also receive a hand from demand-led forces as the country’s Labor Secretary announced a record 12 percent increase in the minimum wages of Manila workers,” Rao said.

Scheduled for implementation in two tranches starting in July 2026, the wage hike aims to restore purchasing power but risks keeping headline inflation above the BSP target for the rest of the year.

Reyes Tacandong & Co. senior adviser Jonathan Ravelas shared this cautious outlook, pegging the June print at 6.5 percent and citing persistent supply constraints in the food sector. While noting that a recovering peso has stabilized some import costs, he stressed that the battle against rising prices is far from over.

“Inflation isn’t out of control, but it’s also not fully tamed yet,” Ravelas wrote, urging businesses to prepare for continued volatility driven by “weather shocks and global oil movements.”

Australia and New Zealand Banking Group (ANZ) Research projected a June reading of 6.7 percent. Krystal Tan, ANZ economist for Asia, pointed out that while a 20 percent decline in crude oil prices provided a much-needed buffer, “elevated food prices and second-round effects” from earlier energy spikes remain the primary macroeconomic risks.

However, the most significant threat remains the strengthening El Niño, which carries a 63 percent probability of becoming “very strong” by late 2026. Tan noted that, compared to its neighbors, “the Philippines appears the most vulnerable” due to its high food-price sensitivity and continued dependence on imported rice.

Given these persistent pressures, the outlook for monetary policy remains hawkish. DBS expects the BSP to hike rates further in the second half of 2026 from the current 4.75 percent, projecting that the benchmark rate will reach 5.25 percent. Similarly, Tan noted that “renewed food inflation keeps central banks hawkish for longer.” — Derco Rosal