Inflation for December is projected to settle between 1.2 and 2.0 percent, the Bangko Sentral ng Pilipinas (BSP) said on Monday.

In a morning advisory, the central bank said upside price pressures could come from lingering effects of recent inclement weather, strong Christmas-season consumption, and higher prices of liquefied petroleum gas and gasoline. These pressures, however, may be partly offset by lower electricity rates in areas serviced by Manila Electric Company (Meralco), as well as price cuts in kerosene and diesel.

Inflation refers to the sustained increase in the general price level of goods and services over time. In November, inflation eased to 1.5 percent, while inflation for the first three quarters of the year averaged 1.7 percent, well below the BSP’s 2 to 4 percent target range.

Based on the BSP’s December forecast and the officially reported October and November figures, fourth-quarter inflation is expected to average 1.5 to 1.7 percent. For full-year 2025, combined BSP and Philippine Statistics Authority (PSA) data point to headline inflation settling between 1.6 and 1.65 percent.

Both fourth-quarter and full-year inflation projections fall below target, signaling preserved household purchasing power and slower price increases — outcomes the national government partly attributes to measures aimed at stabilizing food prices.

In a December 28 statement, Malacañang cited low inflation as evidence of what it described as “decisive and coordinated action to stabilize prices, secure food supply, and protect household purchasing power.”

“To put this in perspective, a 6% inflation rate means that your P100 can buy only about P94 worth of goods and services. But with inflation down to just 1.6 percent in 2025, that same P100 can now buy about P98.4 worth of goods and services,” said Executive Secretary Ralph Recto.

Economists caution, however, that persistently low inflation may also reflect weak demand, compress corporate margins, and raise the real burden of debt. While beneficial to consumers, low inflation remains one of the few bright spots in an otherwise challenging year marked by the economic fallout from the flood control scandal.

Third-quarter gross domestic product growth slowed sharply to 4.0 percent, while BSP Governor Eli M. Remolona Jr. has said fourth-quarter growth could ease further to around 3.8 percent, well below the government’s 5.5 to 6.5 percent target. This marks the third consecutive year the Marcos administration has missed its growth goals.

Market sentiment also deteriorated sharply. The Philippine Stock Exchange index slid to three-year lows following video exposés by fugitive former congressman Zaldy Co, while the peso hit record lows in November and December amid heightened political uncertainty tied to the floodgate scandal. The BSP’s recent business and consumer confidence indices likewise indicate apprehension spilling over into 2026.

Against this backdrop, the BSP’s Monetary Board cut the target reverse repurchase rate by 25 basis points, citing subdued inflation and manageable liquidity conditions. While the central bank signaled it may be nearing the end of its easing cycle, Remolona said a further rate cut at the February meeting remains possible, depending on economic conditions. He added that the BSP expects the economy to rebound “by the middle of next year.”