By Katherine K. Chan, Reporter

The Bangko Sentral ng Pilipinas (BSP) announced on Friday that Philippine inflation likely eased to a four-month low in July, as declining food prices partially offset upward pressures from rising fuel and electricity costs and a weakening peso.

"At a time of heightened uncertainty, the BSP projects July 2026 inflation to settle within the range of 5.6% to 6.6%," the central bank said in a statement.

If the forecast materializes, the July reading would mark the fifth consecutive month that inflation has exceeded the BSP's 3% target — a streak that began in March when the Middle East conflict pushed global oil prices higher, disproportionately affecting net importers such as the Philippines and driving up consumer costs. The persistent overshoot keeps monetary policy in a challenging position, as the central bank balances its price stability mandate against the need to support economic growth. The figure would also represent a sharp acceleration compared to the 0.9% headline rate recorded in July 2025.

At the upper bound of the forecast range, inflation would surpass June's 6.4% and mark the fastest pace in two months, dating back to May's 6.8%. At the lower bound, it would represent the slowest rate in four months, since March's 4.1%.

"Upside price pressures during the month could stem from elevated domestic petroleum pump prices, higher electricity rates, increasing fish prices, and the depreciation of the peso against the strengthening US dollar," the BSP said.

Renewed hostilities in the Middle East during July sent global and local oil prices surging once again, nearly erasing the rollbacks observed in prior months. Domestic fuel retailers raised pump prices by as much as P11.70 per liter for gasoline, P26.19 per liter for diesel, and P23.89 per liter for kerosene.

Manila Electric Co. also increased electricity rates by 34.28 centavos per kilowatt-hour (kWh) to P14.8261 per kWh, up from P14.4833 per kWh in June. This adjustment translated to an approximately P69 increase in the total monthly bill for households consuming 200 kWh.

Renewed inflation concerns, fueled by soaring oil prices and safe-haven demand for the US dollar, pushed the peso to fresh record lows during the month. On July 24, the peso closed at an all-time low of P61.847 against the dollar, surpassing the previous record of P61.75. For a country that imports nearly all of its petroleum and relies heavily on dollar-denominated commodities, the peso's decline compounds the inflationary impact of elevated global oil prices.

BSP Governor Eli M. Remolona, Jr. stated that the central bank continues to participate in the foreign exchange market to smooth out excessive volatility that could contribute to inflation. However, he noted that intervention remains minimal, as attempting to defend the currency against a strong dollar would only deplete reserves.

On the downside, the BSP noted that the continued month-on-month decline in rice prices, along with cheaper meat, vegetables, and fruits, may have provided some relief. According to data from the Philippine Statistics Authority, the price of regular milled rice in the second half of July declined by 0.74% to P49.30 per kilo from P49.67 in the comparable year-ago period, while well-milled rice fell by 0.82% to P55.69 per kilo from P56.15 in the previous month.

"The BSP will remain vigilant and guided by incoming data, particularly on inflation and growth prospects. It will continue to monitor recent developments in the Middle East for their impact on inflation and economic activity," the central bank said.

The BSP expects headline inflation to average 6.4% by year-end, well above its 2%–4% tolerance band. The official July consumer price index release from the Philippine Statistics Authority will confirm where actual inflation landed within the central bank's forecast range and inform the BSP's next policy rate decision.

Source: BusinessWorld