Inflation could breach target by late 2025 – BSP

March 18, 2025 | 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) warned that inflation could exceed its four percent upper target in the latter part of 2025 due to heightened risks from supply chain disruptions, volatile commodity prices and foreign exchange fluctuations.

In its latest Monetary Policy Report, the central bank said that “inflation could exceed the target range in the latter part of 2025, primarily due to base effects from easing commodity price pressures in the corresponding period of 2024.”

The BSP identified several factors that could push inflation beyond its target range. Among the key risks are persistently high global oil prices, food supply disruptions, peso depreciation, potential wage hikes as well as transport fare and utility rate adjustments.

Geopolitical tensions and production cuts by major oil exporters could drive fuel prices higher, leading to increased transportation and utility costs.

“If Dubai crude oil prices were to average $100 per barrel in 2025 and $85 per barrel in 2026, inflation could breach the target range, considering only direct effects and not potential second-round impacts,” the BSP said.

Upward pressure on inflation may come from higher transport charges across various public utility vehicles. Electricity rates may also increase following a Supreme Court ruling in July 2023 nullifying Wholesale Electricity Spot Market price caps for late 2013.

The BSP cited the ongoing impact of African swine fever on pork supply and hog repopulation efforts as another upside risk to inflation.

A weaker peso could also raise the cost of imported goods, further fueling inflationary pressures. Currency movements will be closely tied to global monetary policy trends, particularly decisions of the US Federal Reserve.

However, the BSP said that the anticipated decline in rice prices from tariff reductions is expected to help guide inflation toward the midpoint of the two to four percent target range in the first half of 2025.

Inflation is then projected to move closer to the midpoint of the two to four percent target in 2026, supported by an expected moderation in global commodity prices.

The BSP increased its baseline inflation forecast for 2025 to 3.5 percent from 3.3 percent in December. It maintained its 2026 projection at 3.5 percent.

“The inflation outlook for 2025 has been revised upward, reflecting higher global oil and non-oil prices, peso depreciation and recent above-expectation inflation readings in December 2024 and January,” the BSP said.

The BSP also set its risk-adjusted inflation outlook at 3.5 percent for 2025 and 3.7 percent for 2026.

On the downside, the reduction in tariffs on rice imports could lead to further declines in domestically produced rice prices.

“Overall, the risks to the inflation outlook are now broadly balanced for 2025 and 2026,” the BSP said.

BSP estimates showed that the likelihood of inflation settling within the target range for 2025 is at 53.5 percent. The probability for 2026 stood at 49.9 percent.

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