Inflation seen to climb as upside risks linger

Inflation is projected to climb in the coming months as supply-side pressures and the extension of rice import restrictions threaten to push prices higher, which could prompt the Bangko Sentral ng Pilipinas (BSP) to keep policy rates unchanged.

Following the slight uptick in inflation to 1.7 percent in September from 1.5 percent in August, analysts said this may mark the start of a gradual pickup after months of subdued readings, with weather-related disruptions and policy measures posing upside risks toward year end.

HSBC ASEAN economist Aris Dacanay said that while September’s below-consensus figure still falls below the BSP’s two to four percent target range, rice prices would be a key factor to watch in the next few months after the government extended its rice import ban until the end of the year.

“This is a major upside risk to inflation that needs to be monitored,” he said. “But importers have frontloaded their rice orders in anticipation of the ban, leading to ample supply by end-August. If local farmers were able to harvest before Typhoon Nando hit, rice supply may be sufficient to keep prices stable through year end.”

Despite the soft inflation reading in September, HSBC expects the BSP to pause its easing cycle this week before resuming rate cuts in December.

“We think September inflation sets the stage for a quarter-point rate cut in the fourth quarter to 4.75 percent. But we still expect the BSP to wait for more data on gross domestic product and rice prices before continuing its easing cycle,” Dacanay said.

He added that the policy rate could fall to 4.50 percent by the first quarter of 2026 if inflation remains stable.

Economists at Citi echoed the view that the BSP would likely stay on hold in October, even as it eyes further rate cuts toward the end of the year.

“Following tame inflation readings in September, we continue to expect a gradual rebound of the headline into the three-percent handle in 2026,” Citi said.

“Growth concerns could eventually resurface, leading to a cut before the end of the year. However, as economic data is so far mixed, BSP will probably pause in the October meeting.”

Citi expects inflation to stay between 1.3 and two percent year-on-year through the first quarter of 2026 before rising to around 3.5 percent by end-2026.

BPI lead economist Jun Neri also flagged that inflation risks remain tilted to the upside, particularly due to weather disturbances and import restrictions.

Neri expects inflation to stay near two percent for the rest of 2025 before climbing to around 3.5 percent by mid-2026 and nearing four percent by the third quarter next year as base effects fade and supply risks persist.

“With inflation likely to pick up in the coming months, the pace of monetary easing may slow down,” Neri said. “A more conservative approach is justified as cutting rates aggressively could leave the economy vulnerable to inflation shocks that might force a sharp policy reversal later on.”

The BSP has so far cut policy rates by a total of 150 basis points since August 2024, bringing the benchmark rate to five percent.

The Monetary Board is scheduled to hold its final policy review for the year on Dec. 11.

Source: Philstar

World Bank keeps PHL GDP forecasts unchanged

The World Bank maintained its Philippine gross domestic product (GDP) growth forecasts for this year and 2026, amid heightened uncertainty and slowing global growth.

In its latest East Asia and Pacific Economic Update released on Tuesday, the multilateral lender kept its growth outlook for the Philippines at 5.3% this year and 5.4% for 2026, unchanged from its projections in June.

These forecasts are below the government’s 5.5-6.5% target for this year, and 6-7% for next year.

The Philippines is expected to be the region’s fourth fastest-growing economy in the East Asia and Pacific this year, trailing Vietnam (6.6%), Mongolia (5.9%), and Palau (5.7%).

For 2026, the Philippines is projected to post the third-fastest growth after Vietnam (6.1%) and Mongolia (5.6%).

The country’s growth forecast is above the regional average, with East Asia and the Pacific expected to expand by 4.8% this year and 4.3% in 2026.

“East Asia and Pacific region growth remains relatively high, but it is slowing down,” World Bank East Asia and Pacific Chief Economist Aaditya Mattoo said in a virtual briefing on Tuesday.

“At the same time, domestic policy choices, especially the reliance in some countries on fiscal stimulus rather than structural reform, are likely to shape near and longer-term growth outcomes. Turning to the reasons why growth is slowing down, we identify three main factors — trade restrictions, increased economic policy uncertainty, and slowing global growth,” he said.

The US imposed a 19% tariff rate for Philippine-made goods starting Aug. 7.

Mr. Mattoo noted that most economies in the region now face higher tariffs, but the Philippines, Thailand and Vietnam are less affected since electronics and semiconductors are exempted from tariffs for now.

The World Bank noted that economies in the region have lowered tariffs exclusively on US imports and pledged to increase purchases of specific American goods, in response to higher tariff rates.

“In some cases, countries have engaged with other trading partners to pursue greater diversification of their trade. These actions may be costly but necessary in an uncertain trading environment,” it said.

The Philippine government has vowed to adopt a zero-tariff scheme on selected US goods, but the move could cost the government P27 billion to P30 billion in forgone revenues. However, negotiations with the US have yet to be finalized.

RISE OF DIGITAL INFORMALITY

Meanwhile, the Philippines is seeing a shift in informal work from agriculture to digital platforms like ride-hailing applications, the World Bank said. However, poor education may prevent workers from capitalizing on tech-driven jobs, it added.

“Now there is the new informality, which is informality of these new platform-based services, which are growing in Thailand and in the Philippines,” Mr. Mattoo said.

However, Mr. Mattoo said regulation and taxation of the informal sector can be reformed to ensure fewer people are marginalized from the economy.

“I think the Philippines is in a position to benefit (from emerging jobs due to technology) if it deals with the huge deficit in human capital,” he said.

“It is stunning that a country that punches above its weight in services, exports, still has feet of clay when it comes to basic education.”

Mr. Mattoo noted that companies in the Philippines are actively involved in the artificial intelligence (AI) economy but see a lack of skills in workers due to poor basic educational foundation.

“East Asia’s export-oriented labor-intensive growth lifted a billion people out of poverty in the last three decades, but the region now faces the twin challenges of trade protection and job automation,” he said.

Mr. Mattoo called for reforms in the business climate and education system to foster a “virtuous cycle between opportunity and capacity,” which would lead to stronger growth and better-quality jobs.

The World Bank also called for reforms and investments in human capital and digital infrastructure, greater competition in services, and policies to ensure a match between job opportunities and people’s skills.

It noted that rapid advances in AI, robotics, and digital platforms require greater agility from firms, workers, and policymakers.

Meanwhile, Mr. Mattoo also flagged the Philippines’ slow industrialization compared with regional peers such as Vietnam, citing the country’s continued reliance on trade tariffs.

“Trade taxes are the simplest way of limiting revenue especially in countries with low administrative capacity,” he said, as it diverting resources away from sectors where the country holds an advantage.

The Philippine government lowered the rice import tariff to 15% from 35% in July 2024 to curb inflation. Agriculture groups have since called for the restoration of the original rate, citing adverse effects on local farmers and an estimated P4.3-billion revenue loss for the government.

“I think non-discriminatory instruments like value-added taxes, better and more effective income taxes and perhaps even the more controversial wealth taxes might be the more effective way of meeting revenue needs,” Mr. Mattoo said.

Finance Secretary Ralph G. Recto has downplayed the urgency of a wealth tax, but said he would support the measure if passed by Congress.

EAP Economic Update_October2025.pdf

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Source: Business World

Philippines’ August jobless rate declines

The Philippines’ unemployment rate fell to 3.9% in August, reflecting stronger hiring momentum as the labor market recovered from midyear slack.

The number of jobless Filipinos fell to 2.03 million from 2.59 million in July and 2.07 million a year earlier, the Philippine Statistics Authority said on Wednesday.

The employment rate improved to 96.1% from 94.7% in July, with total employed persons rising to 50.1 million. The jobless rate was 4% a year earlier and 5.3% in July.

The labor force participation rate climbed to 65.1% from 60.7% in July, equivalent to 52.13 million Filipinos aged 15 and older either working or seeking work.

On average, employees worked 41 hours a week, up from 40.7 hours in August last year.

The service sector remained the country’s biggest employer, accounting for 61.5% of total jobs, followed by agriculture at 20.4% and industry at 18.1%. Wholesale and retail trade, agriculture and forestry, and construction were the top employing subsectors.

Underemployment eased to 10.7% from 14.8% in July, with 5.38 million workers saying they wanted more hours or an additional job. Of the underemployed workers in August, 62.4% worked less than 40 hours a week, while 37.6% worked 40 hours or more a week.

Youth employment also improved, with the employment rate among those aged 15 to 24 rising to 88.3% from 81.9% in July, the local statistics agency said.

Source: Business World