Philippine inflation expectations at risk of de-anchoring as El Niño and Middle East shocks loom

Economists warn that renewed price shocks and a severe El Niño could de-anchor inflation expectations in the Philippines, keeping the central bank on a tightening path. Bangko Sentral ng Pilipinas Governor Eli Remolona flagged the El Niño as a top concern, while September inflation hit 7.2%, a three

Economists have warned that the risk of de-anchoring inflation expectations in the Philippines has increased sharply, driven by renewed price shocks from the Middle East war and a looming "Super El Niño". Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said on 10 Oct 2026 that the central bank is now more worried about inflation expectations, noting that "expectations matter" in uncertain situations.

GlobalSource Partners Country Analyst Diwa C. Guinigundo, a former central bank deputy governor, told BusinessWorld that the combination of renewed price shocks and a potentially severe El Niño raises the prospect of persistent food inflation, which could spill over into broader prices, wages and inflation expectations. "I would be cautious about declaring inflation expectations de-anchored at this point. However, the risk has clearly increased," he said.

Inflation surged to a three-and-a-half year high of 7.2% in September, sharply faster than the 6.1% in August and 1.7% in September 2025. September marked the seventh consecutive month that inflation exceeded the central bank's 3% target, bringing the year-to-date average to 5.4%. The BSP's Survey of External Forecasters as of August showed a "red line" scenario projecting inflation between 5% and 6% over the next three years.

Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said that while inflation expectations remain generally anchored, the latest 7.2% print and the pickup in core inflation suggest upside risks are increasing. "The concern is less about a one-off increase in food prices and more about the possibility that higher food costs become embedded in wage demands, transport fares, and business pricing decisions," he said.

Mr. Remolona described the severe El Niño as "really, really bad news" and a top concern for monetary policy. The Philippine Atmospheric, Geophysical and Astronomical Services Administration has said the country may encounter a "very strong" El Niño season until December, which could persist into the first half of 2027. Japan-based Nomura Global Markets Research tagged the Philippines with the highest inflation pressure in Asia, with an inflation generalisation index of 108.

Economists said the case for another quarter-point rate hike has strengthened. In August, the Monetary Board raised its key policy rate by 25 basis points to 5%, its third straight tightening move, bringing cumulative hikes to 75 bps since April. Mr. Guinigundo noted the BSP faces a difficult balancing act ahead of its 22 Oct 2026 meeting as the economy grapples with heated inflation and sluggish growth. "A higher-for-longer rate path is therefore a real possibility, but it should not be automatic. Monetary policy cannot produce more rice, restore rainfall, or resolve supply-chain bottlenecks," he said.