By Katherine K. Chan, Reporter

Headline inflation in the Philippines may have already peaked, but core inflation continues to signal persistent underlying price pressures, keeping the Bangko Sentral ng Pilipinas (BSP) on a tightening path, according to analysts.

Nomura Global Markets Research Chief ASEAN Economist Euben Paracuelles and Economist Nabila Amani said the softer core inflation reading in July was likely temporary, as other energy-sensitive commodities continued to climb.

"The decline was not broad-based, as it was mainly due to lower education fees, led by a drop in fees at the primary and secondary education levels, which are likely one-off, in our view," they said in a report on Wednesday.

"Other items sensitive to high energy costs are, by contrast, still adjusting higher, in line with our view, including food services, recreation activity and accommodation," they added.

The Philippine Statistics Authority reported on Wednesday that headline inflation cooled for a third consecutive month, easing to 6.2% in July from 6.4% in June.

Core inflation, which strips out volatile food and energy prices, slowed to 4.2% in July from 4.4% in June, though it remained well above the 2.3% recorded a year earlier.

The core reading captures second-order effects — instances where initial price shocks lead businesses to pass higher costs on to consumers through increased prices for commodities and services such as utilities and transport. This metric helps economic managers assess whether current price movements reflect short-term disruptions or a more enduring trend.

"In terms of trajectory, we continue to believe headline inflation has already peaked, underpinned in part by our crude oil price assumption, but core inflation has not, as we see pass-through effects from energy prices continuing," Mr. Paracuelles and Ms. Amani said.

Their projection assumes that global crude oil prices will decline to $72.4 per barrel in the second half of the year, down from $85.4 per barrel in June. The Philippines, as a net importer of crude oil, is particularly exposed to swings in global energy markets, which feed through into transport, manufacturing, and electricity costs.

Nomura maintained its forecast that headline inflation will average 5.1% this year, with core inflation at 3.9%.

Maybank Investment Bank Chief Economist Suhaimi Illias and Economist Azril Rosli offered a more cautious outlook, warning that sticky core inflation and emerging risks could push inflation to 5.3% this year and 4.9% next year — upward revisions from their previous forecasts of 4.7% and 4.5%, respectively.

"Looking ahead, we expect headline inflation to moderate gradually in the second half of 2026, supported by easing global oil prices, improved food supply conditions and government measures to stabilize essential commodity prices," they said in a separate report dated Aug. 5.

"Nevertheless, sticky core inflation, higher labor costs, the proposed income tax revision and lingering geopolitical uncertainties are likely to keep price pressures elevated."

As of July, year-to-date headline inflation averaged 5%, still below the central bank's 6.4% estimate for the year, while core inflation averaged 3.6%.

"Philippines' inflation remains the highest in the region, with July's print of 6.2% yoy (year on year) still breaching the central bank's target, despite easing from its recent peak," DBS Group Research said in a note on Thursday.

The BSP targets inflation within a 2–4% band, with 3% as the midpoint.

The Singaporean bank said the latest reading and the BSP's hawkish stance have increased the likelihood of a third consecutive rate hike aimed at managing inflation expectations.

"The latest CPI inflation reading is unlikely to change that stance from BSP, in our view, but justifies its preference for a measured approach to its hiking cycle," Mr. Paracuelles and Ms. Amani said.

The Nomura economists expect two additional rounds of measured tightening from the BSP — one 25-basis-point (bp) hike at each of its August and October meetings.

"We reiterate our forecast for BSP to hike by another 50 bps this year, delivered in 25-bp clips over each of the next two meetings (August and October)," they said.

"We believe BSP remains concerned about rising core inflation and is highly vigilant of upside risks overall, likely due a combination of still-high uncertainty in crude oil prices, some impact from higher-than-expected wage hikes and prospects of a strong El Niño," they added.

El Niño, a warming of Pacific Ocean surface temperatures, typically brings drier conditions to the Philippines that can reduce agricultural output and push food prices higher.

Mr. Illias and Mr. Rosli similarly argued that the case for further rate increases remains strong, given lingering price pressures and emerging inflation risks on multiple fronts.

They now expect the BSP to deliver two more 25-bp increases — a larger move than their earlier call for a final 25-bp hike this month.

"We expect the BSP to raise the policy rate to 5.25% by end-2026 (previously: 5%), while maintaining a restrictive policy stance to anchor inflation expectations and contain second-round effects," Mr. Illias and Mr. Rosli said.

Since beginning its tightening cycle in April, the Monetary Board has delivered a cumulative 50 bps in rate hikes, bringing the key policy rate to a near one-year high of 4.75%.

In its statement following the July inflation report, the central bank reaffirmed that it remains prepared to take monetary policy action to steer inflation back toward its 3% target.

BSP Governor Eli M. Remolona, Jr. has also left the door open to further tightening, noting a "small chance" of a 50-bp increase at the upcoming meeting later this month.

The Monetary Board is scheduled to hold its fourth policy review of the year on Aug. 27, with the two remaining meetings set for Oct. 22 and Dec. 17.