The Philippine Statistics Authority (PSA) reported that average headline inflation for 2025 settled at 1.7 percent, well below the Bangko Sentral ng Pilipinas (BSP)’s target range of 2 to 4 percent.

In its Tuesday morning release, the PSA said the 2025 inflation rate was significantly lower than the 3.2 percent annual average recorded in 2024, largely driven by slower price increases in food and non-alcoholic beverages, which carry the heaviest weight in the consumer price index. The category’s average inflation eased to 1.2 percent in 2025, down from 4.4 percent a year earlier.

Food, non-alcoholic beverage price increases

For December, inflation rose to 1.8 percent, up from 1.3 percent in November. The uptick was mainly attributed to faster year-on-year price increases in food and non-alcoholic beverages, which climbed to 1.4 percent from 0.1 percent the previous month. Higher inflation in clothing and footwear, which rose to 2.2 percent in December from 1.8 percent in November, also contributed to the increase.

The PSA noted, however, that lower inflation rates were recorded in several key categories during the month, including alcoholic beverages and tobacco, housing, water, electricity, gas and other fuels, and transport, helping temper overall price pressures.

Household purchasing power sustained

Sustained low inflation has preserved household purchasing power, offering a rare bright spot in a year marked by economic slowdown following the flood control scandal. It has also given the central bank room to cut its policy rate, injecting additional liquidity into the economy to support growth after a disappointing 2025.

However, economists caution that persistently low inflation may also reflect weak consumer demand. The BSP’s latest consumer confidence survey showed broad pessimism in the fourth quarter, driven largely by governance and corruption concerns.

Inflation is closely linked to spending behavior. When demand is strong, businesses can raise prices as consumers compete for goods and services. When demand weakens, firms struggle to pass on costs, often keeping prices flat or offering discounts to sustain sales.