Philippine headline CPI inflation rose to 7.2% year-on-year in April, compared with an expectation of 5.2%, and up by over 3 percentage points from 4.1% year-on-year in March. The rise was linked to broad-based food and fuel pressures, and inflation was also spreading into core measures.
Brent crude is forecast to average about US$104 per barrel in 2Q, with supply disruptions expected to ease materially only in 3Q. CPI inflation is projected to rise further and average above 8% in 2Q, lifting the full-year inflation forecast to 6% year-on-year.
Policy Tightening Risks Rise
The data increase the risk of larger and faster policy tightening by the Bangko Sentral ng Pilipinas. A 25 basis point rate rise in June is presented as assured, with a 50 basis point move also possible.
The recent inflation data is a major wake-up call. April’s CPI jumped to 5.9%, blowing past forecasts and accelerating sharply from the 3.8% we saw in March. This rise is being driven by renewed pressure on food and transport costs, fueled by higher global oil prices.
We’ve seen this play out before, recalling the inflation shock in 2025 when CPI surged past 7%. Back then, the Bangko Sentral ng Pilipinas (BSP) responded with aggressive tightening to get ahead of the curve. That historical response suggests the central bank will not hesitate to act decisively again to anchor inflation expectations.
Global energy markets are adding to the pressure, with Brent crude now stubbornly holding above $95 per barrel. With ongoing supply-side anxieties in key producing regions, we don’t see significant price relief coming in the next quarter. This persistent cost pressure will continue feeding directly into our local inflation numbers.
Market Positioning And Peso Implications
Given this outlook, positioning for higher short-term interest rates is the clear trade. The BSP’s next meeting in June is now live, and we should consider a 25 basis point hike as the absolute minimum. The risk is skewed towards a larger 50 basis point move, especially with the peso recently sliding past 58.50 against the dollar.
For the currency, this creates a complex picture. While rate hikes are typically supportive of the peso, persistent high inflation could weigh on sentiment. Traders should look at options to hedge against further PHP volatility, as the currency will be caught between hawkish central bank policy and negative inflation headlines.
