“However, higher electricity rates and vegetable prices could partly offset these downward price pressures,” the BSP said.
The central bank has missed its inflation forecasts in each of the past three months since the onset of the Middle East conflict in March, reflecting heightened uncertainty over developments involving the United States and Iran and their impact on global oil price volatility.
While inflation in March and April exceeded the BSP's projections, May's inflation rate came in below the BSP’s 7.1 to 7.8 percent forecast, easing to 6.8 percent from April's three-year high. Despite the slowdown, May inflation remained roughly four times higher than its end-2025 level.
Bank of the Philippine Islands (BPI) Lead Economist Emilio Neri Jr. said the sharp fuel price rollbacks seen in May may have already peaked, leaving upside inflation risks firmly in place, including the potential impact of the upcoming El Niño season.
“[T]he pace of disinflation is decelerating sharply: May's outsized 19.6 percent [month-on-month] pump price decline narrows to an estimated 5.9 percent in June, as most of the rollback room may have already been realized,” Neri said in a commentary released Wednesday.
Neri noted that Dubai crude averaged $85 per barrel in June, down 16.5 percent month on month after a 4.4 percent decline in May. However, the sharper drop in global crude prices was not fully reflected in domestic pump prices, which fell 7.7 percent month on month in June compared with 19.7 percent in May.
“This indicates that most of the fuel price rollback may have already been passed on to consumers, limiting further transport-driven disinflation. Meanwhile, global oil prices remain sticky despite the US-Iran ceasefire, reflecting the fragility of the truce and the gradual normalization of shipping flows through the Strait of Hormuz,” he added.
Neri said BPI expects the current disinflation cycle to be short-lived, citing several upside risks, including the potential impact of a Super El Niño on agricultural output and food prices, the fragility of the US-Iran de-escalation that could reverse recent fuel price rollbacks, rising fertilizer costs that continue to pressure farm production, and the P80 minimum wage increase in the National Capital Region, which could reinforce second-round inflation effects.
BPI projects June inflation easing to 6.5 percent. Neri added that the BSP, which has raised interest rates twice since the onset of the Gulf conflict, is likely to maintain its hawkish stance “should second-round effects or fresh supply shocks emerge in the second half of the year.”
