BPI sees inflation steady as case for rate cut grows

An economist from the Bank of the Philippine Islands (BPI) sees inflation remaining steady at 1.8 percent in the first month of 2026.

In a Friday statement, BPI lead economist Jun Neri said upward pressures from food and energy prices were offset by easing utility rates and lower vegetable costs, keeping inflation unchanged from December.

“Headline inflation likely remained steady at 1.8% [year on year] in January,” he said.

“The monthly uptick was mainly driven by higher fish and rice prices, alongside elevated global oil prices and LPG rate hikes. Rice inflation has risen month on month for three consecutive months, with sharper gains since December, reflecting weaker local production in 4Q due to weather-related disruptions and high fertilizer costs.”

Neri noted the rebound in global crude prices, with US benchmark West Texas Intermediate (WTI) revisiting the $60-per-barrel level amid heightened geopolitical risks linked to US involvement in the Middle East and Venezuela. These developments have filtered through to higher domestic pump prices and LPG adjustments.

“These upward pressures were partly offset by lower Meralco rates and cheaper vegetable prices, helping cap the overall inflation print,” he added.

Neri’s forecast comes ahead of the official release of January inflation data by the Philippine Statistics Authority (PSA) on Thursday, 5 February. The Bangko Sentral ng Pilipinas (BSP) also said on Friday that headline inflation is expected to settle within the range of 1.4 to 2.2 percent, placing Neri’s projection squarely within the central bank’s forecast band.

The BSP attributed upward price pressures to rising domestic food and fuel costs, as well as “the annual adjustment in excise taxes for alcohol and tobacco, higher water and toll rates, as well as the peso depreciation.” It likewise noted that lower Meralco rates and cheaper vegetable prices helped temper inflation.

Neri said the combination of subdued inflation—well below the BSP’s 2 to 4 percent target—and the 14-year-low GDP growth posted in the fourth quarter of 2025 gives the central bank room for another rate cut at the Monetary Board’s 19 February meeting.

“Against this backdrop of subdued inflation and weakening growth momentum, the case for a February rate cut by the BSP has strengthened. This is reinforced by the disappointing 4Q GDP growth of just 3.0%, well below potential and market expectations, underscoring downside risks to domestic demand,” he said.

“Even as the Federal Reserve is widely expected to stay on hold until Chair [Jerome] Powell’s term ends in May, local growth considerations may prompt the BSP to move ahead of the Fed at the Feb 19 policy meeting,” Neri added.

Neri said inflation is expected to gradually converge toward the BSP’s target range through 2026 as base effects from last year’s rice price declines fade. He also noted that peso depreciation risks remain, given slower full-year GDP growth of 4.4 percent in 2025, well below the central bank’s 5.5 to 6.5 percent growth target.