Philippine Inflation Hits 31-Month High

Philippine core inflation hits 31-month high as BSP eyes third hike

Manila's headline CPI eased to 6.4% in June 2026, but core inflation broke out to 4.4% — pushing the Bangko Sentral toward another rate hike in August.

The Philippines' June 2026 headline inflation slowed for a second straight month to 6.4%, from 6.8% in May, but core inflation — the measure the Bangko Sentral ng Pilipinas actually steers by — accelerated to 4.4%, its highest reading in 31 months. That divergence is the whole story: it tells the Monetary Board that the Middle East oil shock has stopped being a supply blip and has started colonising services, rents and wages, which is exactly the condition that forces a central bank to keep tightening even as the pump-price headline cools. With the peso at PhP61.58 to the dollar and the Marcos administration still operating under a national energy emergency, the BSP's August meeting is now odds-on to deliver a third consecutive 25-basis-point hike — the sharpest reversal of a Southeast Asian easing cycle since the post-Ukraine inflation surge of 2022.

The number under the number

The Philippine Statistics Authority released the June print on July 8. Headline slowed on softer transport and food; core — which strips out volatile food and energy — rose from 4.1% in May, BusinessWorld reported, the fastest pace since November 2024. Average inflation for the first half of 2026 now stands at 4.8%, above the top of the BSP's 2–4% tolerance band and nearly two full percentage points off the 3% point target codified for 2025–2028, as BusinessMirror reported in Justine Xyrah Garcia and Andrea E. San Juan's account of the release.

That is why the BSP's tone has hardened. Nicholas Mapa, chief economist at ING, told Context.ph that "second-round effects are now clearly visible in services and utilities," while Bank of the Philippine Islands economists warned that persistent domestic pass-through risks make further hikes "necessary to protect long-term growth." Mapa elaborated in a July 8 ING note: sticky services inflation and food-supply risks "support our view of further rate hikes," even if headline has peaked.

The primary document is unambiguous. In the April 23 Monetary Board highlights — released after the BSP's first post-crisis hike, to 4.5% — Governor Eli Remolona's board wrote:

"A pre-emptive tightening would also provide a clear policy signal and strengthen forward guidance… the [Monetary Board] formed a broad consensus that a measured pre-emptive increase is appropriate to anchor inflation expectations and contain second-round effects."

The board raised its 2026 inflation forecast to 6.3%, from 3.6% in February. On June 18 it followed through with a second hike to 4.75%, the BSP's monetary policy page confirms. Six months earlier, the same board was projecting inflation "close to target" and analysts were pricing in another 50 basis points of cuts. Nothing about Philippine domestic demand explains the reversal. Everything about the Strait of Hormuz does.

The geopolitical channel

The Philippines imports 98% of its crude oil and virtually all of its fertiliser through Gulf lanes. When the US–Israel war on Iran began on February 28 and the Strait of Hormuz effectively closed, Manila absorbed the shock more sharply than any of its ASEAN peers. Brent crude jumped 42.5% between February 27 and March 23, according to the World Bank's April Monthly Economic Developments. Domestic diesel nearly tripled to PhP150 a litre between February and April, Chatham House reported in a June Manila feature.

On March 24, President Ferdinand Marcos Jr. declared a national energy emergency — the first Southeast Asian government to do so — and signed a law authorising him to suspend fuel excise taxes whenever average Dubai crude tops $80 a barrel for a month, the BBC reported. The Palace secured 700,000 barrels of Russian crude within days and asked Washington for sanctions exemptions to buy from Iran and Venezuela if needed, Al Jazeera reported. A World Bank rule of thumb quantified the pass-through: every 10% rise in international oil prices adds 0.3–0.5 percentage points to Philippine headline CPI, with second-round effects "an additional risk."

Those second-round effects are what June's data now show. Transport inflation is easing as global oil prices come off their April peak — Brent has retreated from north of $100 — but the shock has already been absorbed into contract prices for services, restaurants, personal care, and utilities. That is the mechanical definition of a supply shock that has become a demand problem — and it is why the BSP's June 18 hike was not, in the board's language, "closing" the tightening cycle.

Currency: the second transmission belt

The peso is doing the rest of the tightening work. It has depreciated from PhP58.06 to the dollar on February 27 to PhP61.58 on July 9, according to FT market data — a 6% slide in under five months, and a fresh multi-decade low. That is the second inflation channel: every peso of depreciation raises the cost of the country's dollar-invoiced oil, fertiliser, and food-grain imports, feeding directly into the CPI print two months later.

The BSP's own February 2026 Monetary Policy Report had already flagged this vulnerability, noting that "risk-off shocks which could contribute to currency depreciation" were among the principal upside risks to inflation. The IMF's May 2025 Article IV mission said the same thing in a more sanguine setting — before anyone was pricing in a Strait of Hormuz closure. The gap between what the peso was doing in early 2025 and what it is doing today is, in effect, the size of the geopolitical premium the country has had to pay to remain a Gulf-dependent energy importer.

Reserves have held up better than markets expected — the World Bank note logs $112.7 billion, more than seven months of import cover — but that buffer is exactly what allows the BSP to keep tightening without provoking a full-blown balance-of-payments scare. Sri Lanka in 2022 is the counter-example every Philippine bond desk cites: a small open economy with a Middle East fuel exposure that could not defend its currency and could not raise rates fast enough. Manila is not there. But the cost of not being there is a policy rate that a growing economy would rather not be running.

The winners, the losers, and the quiet trade

The losers are visible on Manila's streets. Jeepney drivers who took home 1,000–1,500 pesos a day now clear 200, Chatham House quotes driver Vicente Belen as saying. A June ISEAS analysis by economist JC Punongbayan called monetary policy "caught in a bind": rate hikes will not tame a supply-driven shock but will further dampen an already-weak investment cycle. Private construction has not returned to its pre-pandemic path; consumer confidence turned sharply negative in Q1.

The less-obvious winners are the country's large integrated conglomerates with dollar earnings and captive utility franchises — the Manuel Pangilinan and Ayala complexes among them — whose regulated pass-through mechanisms let them recover fuel costs while their peso liabilities cheapen in dollar terms. The National Government also quietly benefits: higher VAT collections on fuel partly offset the excise revenue foregone, as the World Bank estimated at roughly 0.5% of GDP if the excise suspension is used through 2026.

The quiet geopolitical trade is with Moscow. The 22.58 million-litre Russian diesel shipment that docked in Manila in late March, and the follow-on cargoes since, mark the first time in the post-2022 sanctions regime that a US treaty ally has openly leaned on Russian crude products as an emergency substitute. Manila's ambassador to Washington confirmed that Iranian and Venezuelan barrels are "on the table" if the US grants a sanctions waiver, Al Jazeera reported. That is a policy the previous US administration would have blocked; the current one is, so far, tolerating it. The subtext is that the sanctions architecture is now negotiable if the alternative is stagflation in a South China Sea front-line state.

Diplomat View

The BSP will hike again in August. The June core print — a 31-month high in a country whose central bank explicitly targets headline but reads core as the leading indicator — leaves Governor Remolona no room to pause without conceding that inflation expectations are de-anchoring. Expect 25 basis points, taking the target reverse repurchase rate to 5.0%, and hawkish forward guidance that keeps a further move in October live. The forecast changes if two things happen: a durable Strait of Hormuz reopening that returns Brent below $75 for a sustained month, and a peso recovery through PhP60. Neither alone is enough; both would let the board hold. What would force a cut is a domestic growth stall — a Q2 GDP print materially below 4.5% — combined with a sharp reversal in food prices. The base case is neither: it is stagflation-lite for the rest of 2026, an average inflation reading well above target, and a BSP that spends the year vindicating its March pivot rather than reversing it.

What to watch

• August 2026 BSP Monetary Board meeting: policy rate decision and updated inflation and growth projections; a hike to 5.00% is the market's base case.
• July 2026 CPI release (early August, PSA): whether core inflation crosses 4.5% — the level at which analysts including BPI say a 50 bp move enters the discussion.
• Strait of Hormuz status and Brent crude: any renewed escalation, or Iranian threats to shipping, would immediately reprice the peso and force the BSP's hand ahead of the meeting.

The Bottom Line

The Philippines' cooling headline inflation is not a policy victory — it is a lag effect masking the fact that the Iran war's oil shock has already been baked into services, rents and wages, and only a tighter Bangko Sentral can prevent it from becoming structural. The August rate decision, not the June CPI, is the number that will define Manila's macro story for the rest of 2026, and the country's willingness to buy Russian and possibly Iranian crude is the quiet signal that the Marcos government now treats energy security as senior to alignment with Washington's sanctions map.