MANILA, Philippines – Headline inflation may have cooled in June, but underlying indicators still signal that price…

MANILA, Philippines – Headline inflation may have cooled in June, but underlying indicators still signal that price pressures are spreading through the economy, Deutsche Bank said, as it maintained a hawkish outlook on Philippine monetary policy.

In a note to clients, the German lender said core inflation—which excludes volatile food and energy items to better capture underlying inflation trends—accelerated to 4.4 percent in June, the fastest pace in nearly three years. This was despite the headline rate easing to 6.4 percent last month.

READ: Further BSP rate hikes seen lifting peso

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That suggested “the process of broadening price pressures is still under way,” Deutsche Bank said.

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“Our monetary policy outlook remains unchanged as we expect the price pressure broadening process to continue in the coming months,” the lender said, reiterating its expectation that the Bangko Sentral ng Pilipinas (BSP) would raise its benchmark interest rate by another 25 basis points (bps) to 5 percent at the Monetary Board’s next policy meeting.

“While headline inflation has come down in the past two months, second-round effects are still working their way through the economy, in our view, as seen in the measures of underlying inflation,” the lender added.

Data released last week showed that inflation had slowed in June. Pump prices rose at a slower pace after global oil markets had stabilized following the tentative ceasefire between the United States and Iran, easing tensions in the Middle East and allowing shipping through the Strait of Hormuz to resume. Food inflation also moderated as higher rice imports helped temper price increases.

Still, the BSP said its latest projections suggest inflation would remain elevated in the near term.

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The central bank last month raised its benchmark interest rate by 25 bps to 4.75 percent, bringing cumulative increases in the current tightening cycle to 50 bps, as policymakers sought to contain inflationary pressures linked to the Middle East conflict and the threat of a severe El Niño.

Higher borrowing costs are intended to curb spending by households and businesses, easing inflationary pressures but also weighing on economic activity.

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READ: Gov’t maintains borrowing plan despite Umic transition–DOF

BSP Governor Eli Remolona Jr. has said the Philippine economy remains resilient enough to withstand another modest rate increase, arguing that borrowing costs remain relatively low in real terms despite the central bank’s tightening campaign.

Looking ahead, Deutsche Bank lowered its 2026 headline inflation forecast to 6 percent from 6.2 percent previously to take into account the lower prints over the last two months. But it kept its 2027 projection unchanged at 4.1 percent.

Both estimates suggested that inflation could stay above the BSP’s target of 3 percent.

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“We believe that the upside risk from El Niño and food price inflation has not been fully priced in, while US dollar strength/rates repricing could keep the peso and imported cost inflation under pressure,” the bank said. INQ