[READOUT] What a stickier inflation wave could mean for businesses

September’s 7.2% inflation rate was bad enough on its own. For businesses, the bigger concern is that price pressures could spread beyond the food and fuel shocks that first pushed inflation higher.

Seasonally adjusted inflation accelerated to 1.1% month on month in September from 0.5% in August. In what National Statistician Dennis Mapa described as a relatively “rare” broad increase, 11 of 13 major commodity groups posted faster inflation, while 16 of 18 regions saw inflation pick up. Core inflation also climbed to 4.7%, its highest in three years.

Nerve spoke with three economists to understand whether this is turning into a more persistent inflation problem and what businesses should prepare for heading into 2027. None sees a prolonged second wave as inevitable, but the risk is becoming harder to dismiss.

The September uptick comes as several price increases have yet to fully work their way through the economy. Among them:

• Recent jeepney, bus, and taxi fare hikes were barely captured by the Philippine Statistics Authority in September and should show up more clearly in October. Passenger transport by road carries a 3.5% weight in the inflation basket.
• Meralco has won approval to raise its average distribution rate from P1.35 to P1.48 per kilowatt-hour, its first increase after a rate review in 15 years. Once implemented in November, that increases energy costs for households and businesses.
• The P60 minimum wage increase in Metro Manila took effect only on September 26, which means possible cost pass-through could be reflected in later months.
• El Niño could add another supply shock into early 2027, with economists warning that a strong drought could cut rice and other food production across the Philippines and the region while also putting pressure on power supply and electricity costs.
• The weakness of the Philippine peso is another source of inflation, as it raises the peso cost of imported fuel, food, raw materials, and equipment and could keep feeding into domestic prices.

Mapa pointed to energy, transport, and housing rents as some of the harder pressures to unwind. Electricity inflation was already 14.6% in September, while rents rose 4% and carry more than a 12% weight in the consumer price basket.

READ: [READOUT] What Philippine borrowing tells businesses ahead of 2027

SM Investments Corporation group economist Robert Dan Roces expects inflation to remain a concern, but said much will depend on food and energy prices over the coming months. 

“Some businesses may feel the pressure, but demand should remain relatively resilient,” he told Nerve.

RCBC chief economist Michael Ricafort told Nerve that inflation may pick up further in the coming months “in view of second-round inflation effects or higher prices of other affected goods and services, or pass-through effects, especially due to higher minimum wages.”

Meanwhile, Rappler resident economist JC Punongbayan said a second, stickier wave becomes more plausible if higher food, fuel, electricity, and transport costs begin feeding into other prices and keep inflation expectations elevated. 

Agriculture, transport, food businesses, and energy-intensive manufacturing face the most direct exposure, while smaller firms have less room to absorb higher costs. Manufacturing may be especially vulnerable given that the sector was already weakening before the latest inflation pressures intensified, with employment falling to 3.16 million in August from 3.43 million in July and 3.46 million in June.

“Small businesses, meanwhile, have less room to absorb higher costs, and retailers could suffer as households spend more on necessities and cut back elsewhere,” Punongbayan told Rappler.

Even as the “ber” months go by, retailers may need to temper expectations for the usual consumption boost. Consider that inflation among the bottom 30% of households reached 9% in September, compared with 7.2% nationally, leaving lower-income consumers with even less room for discretionary spending.

Forecasts vary considerably on how quickly inflation will ease in 2027, with Ricafort taking the most pessimistic view while institutional forecasts generally cluster between 4% and 5.4%.

High inflation also creates a second problem for businesses through interest rates. Here’s how economists think the BSP will react:

• Roces expects the Bangko Sentral ng Pilipinas (BSP) to be more cautious in putting too much additional pressure on growth.
• Ricafort is more hawkish, seeing scope for further tightening while inflation remains far above the 2% to 4% target. He also noted that the BSP could partly match future US Federal Reserve hikes to manage interest rate differentials and help stabilize the peso.
• Punongbayan said further hikes are possible and easing could be pushed into 2027 depending on how core inflation and expectations go, though higher key policy rates risk further straining borrowing, investment, and growth without fixing supply-side pressures.

The next BSP policy decision is scheduled for October 22, with another Monetary Board meeting set for December 17.

We hope this readout helps inform your next strategy or boardroom decision. And as always, feel free to tell us what to tackle next, dear business leader. – Rappler.com

Readout is a new content series from data consultancy The Nerve, bringing you insights that bridge the gap between quick news headlines and dense technical reports. Readout tracks and explains business shifts in different Philippine industries. Crafted from on-the-ground reporting and data-driven analyses, Readout provides a clear read on where market and consumption are headed, what’s shaping demand across different sectors, who the key players are, and why it all matters.

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