The Bangko Sentral ng Pilipinas’ (BSP) tightening cycle may be far from over despite inflation easing for two consecutive months, according to Bank of the Philippine Islands (BPI) lead economist Emilio S. Neri Jr.

In a recent commentary, Neri said the upcoming El Niño season and lingering Gulf-driven inflationary pressures could prompt the central bank to raise interest rates further, even as inflation slowed to 6.4 percent in June.

“While headline inflation has slowed, core inflation continues to trend higher, indicating that price increases are becoming more widespread beyond food and energy,” he said.

“Additional rate hikes could temper economic activity, but the adverse effects of elevated inflation may be more detrimental to growth.”

The Philippine Statistics Authority (PSA) reported on Tuesday that the slowdown in overall inflation in June was primarily driven by a softer increase in transport costs, with the transport index rising 12.8 percent from 16.2 percent in May.

However, the PSA also reported that core inflation, which excludes volatile items such as food and energy, accelerated to 4.4 percent in June from 4.1 percent in May. The BSP has said this reflects broadening price pressures, second-round effects and rising inflation expectations.

At a press lunch on Monday, BSP Governor Eli Remolona Jr. said the economy remains capable of absorbing further monetary policy tightening, citing the country’s strong economic fundamentals.

“Kayang-kaya pa (It definitely still can),” he said.

“That is a significant achievement — 6 percent growth over several years. Some fundamentals are in place, and they are good fundamentals. Our job now is to sustain that momentum and, hopefully, reduce inequality and poverty. We have the fundamentals to work with,” Remolona added.

Remolona has maintained a hawkish stance since the onset of the national energy emergency in March, previously stating that the central bank would implement as many rate hikes as necessary to bring inflation back to its 3 percent target.

The BSP raised its key policy rate in April and June in response to inflationary pressures stemming from the Gulf energy shock, bringing cumulative rate increases in 2026 to 50 basis points. The moves effectively reversed the last two rate cuts implemented to support economic growth following last year’s infrastructure scandal.

Although June inflation eased, it remained significantly higher than the 1.4 percent recorded in the same month a year earlier. Economists, including Neri, have warned that substantial upside risks remain, particularly from second-round effects of the energy shock and the possibility of a strong El Niño episode.

“Rice is particularly vulnerable to drought conditions, as seen during the 2023-2024 El Niño episode when rice prices surged by nearly 25 percent,” Neri said.

“Given its significant share in household expenditures, any sharp increase in rice prices could have a pronounced effect on inflation.”

Remolona previously told reporters that the BSP is closely monitoring both the potential El Niño and geopolitical developments in the Middle East.

“This energy shock, maybe it's over, we don't know. There’s a possibility of an upcoming El Niño shock. We're also monitoring the movement of inflation expectations — it’s quite different from before,” he said in Filipino.