Overall inflation in June slightly rose to 1.4 percent from 1.3 percent in May as prices of housing, utilities and fuels increased, the Philippine Statistics Authority reported Friday.

The latest level fell within the Bangko Sentral ng Pilipinas’ outlook range of 1.1 to 1.9 percent. It was also lower than analysts’ projection of 1.5 percent shared by HSBC and Bloomberg.

The slight increase month-on-month was mainly driven by housing, water, electricity, and gas prices which rose by 3.2 percent from 2.3 percent month-on-month.

Transport prices also remained elevated, falling slower by 1.6 percent compared to 2.4 percent in May.

Higher costs

Higher costs were also seen in educational services, clothing, footwear, furnishings, restaurants and accommodations.

However, food inflation declined to 0.1 percent from 0.7 percent as rice prices fell further by 14.3 percent from 12.8 percent.

Vegetable prices also declined by 2.8 percent, marking a reversal of the 3.4 percent hike in May.

Food disinflation was tempered by higher meat prices which rose by 9.1 percent from 7.9 percent, while fish and other seafood posted a faster inflation of 6.2 percent from 5.7 percent.

Other non-food and non-fuel items under core inflation indicated steady growth at 2.2 percent for the fourth consecutive month or since March.

Given price declines in many goods, the average inflation in the first half of the year stood at 1.8 percent, better than the Central Bank’s default target band of 2 to 4 percent.

Still below target

HSBC economist for Southeast Asia Aris Dacanay projects full-year inflation to settle at 1.8 percent due to cheaper imported goods.

“Moving forward, we expect price pressures to remain subdued. Global rice prices have yet to hit their floor,” he said.

Dacanay said the government’s reduction of rice tariffs by 20 percentage points will continue to take effect on consumer prices.

The economist added that US President Donald Trump’s tariff threats will keep non-food items cheap as China boosts exports outside the western country.

“Goods imported from mainland China also exhibited limited inflation, if not none. For instance, household appliances, recreational durables, information and communication equipment, and the purchase of vehicles all had inflation rates below 1 percent,” Dacanay continued.

Lower interest rates

Dacanay said the Central Bank might ease its policy rate twice in the second half of the year from 5.25 percent to 4.75 percent if the country’s economic growth slows significantly.

“With full-year inflation likely falling below its target band, the central bank has more than enough room to shift to a more accommodative stance and deepen its easing cycle to below 5 percent if the growth outlook were to stumble,” he said.

Due to moderate global demand for goods and services stemming from Trump’s tariffs, the Development Budget Coordination Committee forecasts economic growth to hit at least 5.5 percent this year, lower than the 5.7 percent recorded in 2024.

For his part, Dacanay expects growth to settle at 5.6 percent, easing inflation and trade diversification of other Asian countries with higher Trump’s tariffs.

“We’re a consumer economy and because inflation is very low, our household purchasing power is now more robust. We’re able to spend more on things other than Chinese goods,” the economist said.

However, Dacanay said the Central Bank might ease its policy just one more time in October if global oil prices spike and the peso greatly weakens against the US dollar due to the Iran-Israel conflict.