September inflation surge fuels rate-hike bets

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October 8, 2026 | 12:00am

MANILA, Philippines — Economists are increasingly expecting the Bangko Sentral ng Pilipinas (BSP) to hike interest rates again this month after inflation surged to 7.2 percent in September, as broadening price pressures and risks from oil, transport fares and El Niño threaten to keep inflation elevated.

Bank of the Philippine Islands (BPI), Chinabank Research and Fitch Solutions’ BMI now expect the Monetary Board to deliver another 25-basis-point increase at its October meeting, which would bring the benchmark rate to 5.25 percent from the current five percent.

However, analysts are divided on whether the BSP would need to tighten further after October, with BPI seeing another rate increase in December while BMI expects weak economic growth to limit additional hikes.

September inflation accelerated sharply from 6.1 percent in August, returning to the 7.2-percent level recorded in April. Core inflation, which excludes volatile food and energy items, also rose to 4.7 percent from 4.1 percent.

BPI lead economist Emilio Neri Jr. said the latest data marked a reversal of the easing trend in recent months and indicated that “inflationary pressures remain deeply embedded in the economy,” with second-round effects beginning to materialize.

Neri expects a 25-basis-point increase this month followed by another hike in December, which would take the key policy rate to 5.50 percent by year-end. Further tightening in the first half of 2027 is also possible, with the policy rate potentially reaching six percent depending on the severity of El Niño.

He said a larger 50-basis-point increase at one of the remaining policy meetings this year could not be ruled out, particularly if renewed peso weakness, elevated oil prices or a more hawkish US Federal Reserve add to inflation and foreign exchange pressures.

“If the pace of peso depreciation accelerates again due to higher oil prices, widening external imbalances or a more hawkish Federal Reserve, the BSP may consider a more aggressive policy response to maintain price stability,” BPI said.

Chinabank Research likewise expects another 25-basis-point hike in October, saying the “worst of this inflation episode” may still be ahead as elevated food and oil prices increasingly spill over to other goods and services.

It expects inflation to continue rising and peak in November. The bank flagged substantial transport fare increases and drier weather conditions as key upside risks in the coming months.

BMI also revised its policy outlook following the September inflation surprise, forecasting a 25-basis-point hike in October and raising its end-2026 policy rate projection to 5.25 percent from five percent previously.

The Fitch Solutions unit also raised its average inflation forecast for 2026 to 5.9 percent from 5.7 percent and its 2027 projection to five percent from 4.7 percent.

BMI said oil prices are likely to remain higher for longer. Together with the stronger September inflation print and the Metro Manila minimum wage increase, prolonged energy pressures could result in more second-round effects as higher fuel and labor costs feed into the prices of other goods and services.

A weaker peso also strengthens the case for further tightening, BMI said, noting that higher oil prices and expectations of additional US Fed rate hikes have kept the local currency near record lows.

Still, BMI expects the BSP to stop tightening after October as weak economic activity limits how aggressively it can raise borrowing costs.

It said high-frequency indicators point to lackluster economic activity in the third quarter, posing downside risks to its 3.3-percent Philippine growth forecast for 2026. The manufacturing purchasing managers’ index also slipped into contraction in September.

“Ultimately, weak growth should limit tightening beyond October,” BMI said.

Nomura, meanwhile, expects headline inflation to remain around seven percent in the fourth quarter as food prices stay elevated and high oil prices continue to filter through the economy.

The Japanese investment bank maintained its forecast for inflation to average 5.8 percent this year, sharply higher than the 1.7-percent average in 2025. It also sees core inflation averaging four percent in 2026 as companies continue to pass higher food and fuel costs on to consumers.

For 2027, Nomura expects headline inflation to ease to 3.4 percent as supply-side pressures fade and this year’s elevated price levels create a more favorable base for annual comparisons.