The Philippines' inflation battle shows no signs of easing, with September's consumer price index (CPI) surging to 7.2% year-over-year, up from 6.1% in August. This sharp rise was primarily driven by a rebound in non-rice food prices, which accounted for roughly 75% of the 1.1 percentage point increase in headline CPI. Rice and transport inflation each contributed around 10%, indicating that the surge was largely due to supply-side pressures rather than broad-based demand.
Food prices remain a major factor in the Philippines' inflation struggle, with the CPI basket particularly sensitive to food and fuel price movements. Food inflation has stayed elevated in the 6-7% range since April, while rice inflation has proven stubborn despite efforts to stabilize supply. The rebound in non-rice food inflation suggests that price pressures are broadening beyond rice, affecting cereal and related food products.
El Niño-related weather disruptions and elevated fuel prices are exacerbating inflation risks. Higher transportation and production costs linked to fuel prices are contributing to the problem, along with external factors like Black Sea supply disruptions and higher global corn prices. The full impact of El Niño is expected to become more evident by late 2026 and early 2027, raising concerns that food inflation may remain elevated for longer.
The Bangko Sentral ng Pilipinas (BSP) is likely to hike interest rates by 25 basis points in October, given the strong inflation print. The central bank may maintain a tightening bias to contain inflation expectations until it is confident that inflation is returning to target. The outlook remains skewed to the upside, with uncertainties over El Niño, energy prices, and potential second-round effects from higher wages and food costs.