Philippines September Inflation Seen at 6.5% Amid Oil Prices, Weak Peso

HEADLINE INFLATION could accelerate to 6.5% in September amid elevated oil prices, a weak peso and weather-related supply pressures, strengthening the case for another 25-basis-point (bp) rate hike by the central bank in October, Union Bank of the Philippines, Inc. (UnionBank) said. “With higher oil and non-oil import costs sustaining cost pass-through pressures, inflation is expected to remain elevated and accelerate to 6.5% year on year in September,” UnionBank said in a commentary. It said the peso trading in the P62-to-P63 range, oil prices nearing $94 a barrel and lingering monsoon-related supply pressures could keep inflation expectations “de-anchored in the near term.” UnionBank expects the peso to trade between P62.20 and P62.70 against the dollar this week, with oil prices and the Federal Reserve’s policy decision seen driving the currency. The peso hit a new low of P62.68 against the dollar Friday, weakening from its P62.535 finish Thursday. Inflation has eased for four straight months. Still, it stood at 6.1% in August, marking the sixth consecutive month that it exceeded the Bangko Sentral ng Pilipinas’ (BSP) 3% target and bringing the eight-month average to 5.2%. If realized, the 6.5% estimate for September would bring the nine-month average to about 5.3% and mark the seventh straight month that inflation breached the central bank’s target range. “Should this materialize, the BSP is likely to deliver another 25 bps hike in October, bringing cumulative tightening to 100 bps and positioning it among the more proactive emerging market central banks responding to oil-driven inflation risks,” UnionBank said. The Monetary Board tightened for a third straight meeting on Aug. 27, raising its target reverse repurchase rate by 25 bps to 5%, its highest level since August 2025. UnionBank also noted that year-ahead inflation expectations remained elevated at 5.6% in July. “The BSP’s latest business confidence survey highlighted not only a return to pessimism but also inflation expectations remaining above the BSP’s 4% tolerance ceiling,” it said. It added that persistently high inflation expectations likely contributed to the Monetary Board’s 25-bp rate increase in August. However, another hike in October could pave the way for a pause in December as policymakers assess the impact of higher borrowing costs on the economy. “Cumulative tightening since April 2026 would reach 100 bps, a sizable adjustment that could justify a pause in December as policymakers assess the transmission and economic impact of higher rates,” it added. UnionBank said the BSP could also consider third-quarter gross domestic product data due in early November as it weighs inflation risks against the impact of tighter monetary policy on economic growth. UnionBank maintained its year-end 2026 policy rate forecast at 5.25%. Over the full year, UnionBank expects inflation to average 5.3% before easing to 4.3% in 2027. It sees Philippine economic growth at 3.1% this year and 4% next year. — Justine Irish D. Tabile