Inflation likely cooled further in July – analysts

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August 4, 2025 | 12:00am

MANILA, Philippines — Headline inflation likely slowed in July to as low as one percent – driven by base effects and moderating food prices – giving the Bangko Sentral ng Pilipinas (BSP) more space to slash interest rates as early as this month to support economic growth.

If realized, inflation will ease from the 1.4 percent print in June, marking the fifth straight month it stayed below the BSP’s two to four percent target. The Philippine Statistics Authority (PSA) is scheduled to release official July inflation data on Tuesday, Aug. 5.

“We expect July headline inflation to have eased further to 1.1 percent year-on-year, even as the implied month-on-month change rebounded to 0.4 percent from the -0.1 percent average in the past three months,” said Jun Neri, lead economist at the Bank of the Philippine Islands.

He said the modest rebound in prices was largely driven by higher costs of oil, electricity and select food items such as vegetables, fish and meat. Still, these were offset by a continued decline in rice prices and a high base effect from July 2024, when inflation spiked to 4.4 percent.

Metrobank chief economist Nicholas Mapa shared a similar view, projecting July inflation to dip to 1.1 percent amid persistent rice deflation. “Slower inflation for transport and utilities is also likely to be partially offset by higher meat and vegetable prices,” he said.

Analysts from ANZ Research and HSBC were more bullish, pegging July inflation at just one percent. Both attributed the downtrend to base effects and still-subdued price movements across major commodity groups.

“In annual terms, food and transport prices likely contracted and decelerated across most other product groups,” ANZ said in a note. “However, in sequential terms, we forecast inflation to rise 0.3 percent month-on-month in July, as food prices begin to stabilize and petrol and electricity prices edge higher.”

HSBC ASEAN economist Aris Dacanay echoed these expectations, noting that deflationary pressures from rice and fuel prices outweighed the slight upticks in electricity and diesel rates.

“Retail rice prices continue to decrease while the price of a liter of RON91 fell to P59.73 from P62.33. These outweighed the upward pressure from electricity,” Dacanay said. “Moving forward, inflation will likely begin its steady climb as base effects fade, but for now, there’s room for the BSP to continue its easing cycle.”

Interest rate cut in August?

With inflation nearing its cyclical bottom and growth showing signs of strain, economists said the BSP has room to cut policy rates again in August, though further easing beyond the third quarter may be more cautious.

BPI’s Neri expects a 25-basis-point rate cut this month but warned that “the easing window could narrow in the fourth quarter, with inflation projected to reaccelerate toward the three-percent mark.”

Metrobank’s Mapa noted that inflation staying “well within target” gives the BSP “ample space to cut rates and support moderating growth momentum.”

HSBC likewise sees room for monetary policy easing, although Dacanay cautioned that external developments such as higher-for-longer US rates and tariff-related global uncertainties could limit the central bank’s flexibility later in the year.

“We expect domestic demand to keep the economy intact, more so with monetary policy more accommodative than before. But lower interest rates will unlikely be enough to fully offset the drag of a challenging global environment,” Dacanay said.

The BSP has so far cut rates by 125 basis points since August last year, including its latest 25-basis-point reduction in June.

Looking ahead, the path of inflation, the strength of domestic demand and the direction of US Federal Reserve policy will all be critical in shaping the BSP’s next moves, the analysts said.