Philippines April CPI Surges to 7.2%; Goldman Sachs Raises Full-Year Inflation Forecast and Adds Rate Hike Expectation

Overview

This research report notes that Philippines CPI inflation for April 2026 unexpectedly surged to 7.2% (YoY), significantly higher than the market expectation of 5.5% and the Bangko Sentral ng Pilipinas (BSP) forward guidance range. Inflationary pressures exhibit broad-based characteristics; beyond transportation, food and housing/utilities prices are also accelerating, indicating signs of second-round pass-through from rising energy prices. Based on this, Goldman Sachs has raised its full-year 2026 CPI and core CPI forecasts by 100 basis points to 5.7% and 3.7%, respectively, and added an expectation for an additional 25 basis point rate hike by the BSP in the third quarter, at which point the policy rate is expected to reach 5.00%.

Core views

Inflation data comprehensively exceeded expectations with strong momentum. April CPI YoY growth jumped from 4.1% in March to 7.2%, while MoM growth accelerated from 1.4% to 2.6%. The report emphasizes that this surge is not primarily driven by low base effects; base factors contributed only about 39 basis points, implying that the vast majority of the increase stems from new price pressure in the current month. Notably, this figure even exceeded the upper bound of the BSP's previously issued monthly forward forecast range of 5.6%-6.4%, indicating a rising risk of runaway inflation. The structure of inflation is diffusing from a single sector to multiple sectors, suggesting that 'second-round effects' are occurring. While transportation prices remain elevated (MoM +0.9%), previously relatively moderate categories such as food and housing/utilities have begun to accelerate. Among these, the MoM increase in housing/utilities jumped from 0.2% in March to 0.9%, mainly driven by rising kerosene prices; the MoM increase in food expanded from 0.2% to 0.6%, primarily driven by rising rice prices. This broad-based rise across categories indicates that the initial energy shock is permeating into a wider range of consumer goods through supply chains and cost channels. Underlying inflation indicators have deteriorated in sync, supporting the necessity for rate hikes. Core CPI, excluding volatile items, rose to 3.9% YoY (previous 3.2%). Furthermore, underlying metrics that better reflect general price trends, such as the weighted median and 15% trimmed mean, have risen across the board, indicating that inflation is not driven by individual outliers but has a broad foundation. Considering the unexpected strength of the April data and the risk of second-round effects, the institution believes it is necessary to revise its original assumption of a moderate inflation path. Policy response will be more aggressive. Building on the existing expectation of a 25bp hike in June, the report now explicitly adds a judgment of another 25bp hike in the third quarter. This implies that the BSP will be forced to adopt more aggressive tightening measures to anchor inflation expectations, with the peak policy rate shifting up from the previously expected 4.75% to 5.00%. Regarding food inflation, the report specifically highlights future supply-side disruption risks: the upcoming 'Super El Niño' phenomenon and the possibility of rising fertilizer prices could further push up food prices, making the path to disinflation more tortuous.

Analysis framework

The report adopts a four-step analytical framework of 'Aggregate-Structure-Attribution-Outlook' to assess the nature of inflation. First, by comparing actual values, market expectations, and central bank forward guidance, it confirms the degree to which inflation exceeded expectations; second, it uses changes in MoM momentum to judge whether the trend is accelerating; third, it decomposes CPI components (transportation, food, housing, etc.) to identify whether pressure sources are diffusing from a single energy item to core items, thereby validating the 'second-round pass-through' hypothesis; finally, it combines base effect calculations to strip out seasonal/technical interference, focusing on fresh price shocks. In deriving policy conclusions, the institution follows a 'data-dependent' principle: when inflation readings consistently breach the central bank's tolerance range and structurally deteriorate, the monetary policy reaction function inevitably shifts toward a hawkish adjustment, thus quantifying the magnitude of additional rate hikes.

Methodology notes

• Macroeconomic frameworkPhillips curve

  Second-round pass-through of inflation and wage-price spiral risks

  The report focuses on whether rising energy prices have diffused into core areas such as food and housing, which is key to testing whether 'cost-push inflation' is evolving into 'broad-based inflation'. If core inflation rises in sync with energy prices, it indicates that the economy is experiencing second-round effects; at this point, simply waiting for energy prices to fall is insufficient to control inflation, and central banks typically need more aggressive policy intervention to break this transmission chain.

• Macroeconomic framework

  Base effect stripping method in inflation attribution

  When analyzing YoY data, the report specifically calculates the contribution of the 'base effect' (39bp in this case). This is a common denoising method used to distinguish whether the current surge in inflation is a 'digital illusion' caused by a low base in the same period last year or a real new round of price increases. Only if the majority of the increase can still be explained after stripping out the base impact can it be confirmed as genuine new inflationary pressure.

Key data

• April CPI YoY7.2%Significantly higher than market expectation of 5.5% and previous value of 4.1%
• April CPI MoM (NSA)2.6%Significant acceleration from 1.4% in March
• April Core CPI YoY3.9%Up from 3.2% in March; underlying inflation consolidating
• Base Effect Contribution39bpAccounts for only a small portion of the YoY increase, confirming dominance by new pressures
• 2026 CPI Forecast (New)5.7%Raised by 100bp from original forecast of 4.7%
• 2026 Core CPI Forecast (New)3.7%Raised by 100bp from original forecast of 2.7%
• BSP Policy Rate Peak Expectation5.00%Includes one 25bp hike each in June and Q3

Impact & implications

The report believes that this inflation beat, being both unexpected and broad-based, will force the Bangko Sentral ng Pilipinas to abandon its wait-and-see attitude and shift towards a more explicit tightening cycle. For financial markets, this implies that bond yields may face upward pressure, and the timing for the start of a rate cut cycle will be significantly delayed. For the real economy, higher financing costs and persistent price increases may suppress household consumption willingness and corporate investment expansion, especially in industries that are interest-rate sensitive or have thin profit margins. Furthermore, the stubbornness of food inflation may exert greater pressure on the real purchasing power of low-income groups, thereby affecting consumption stability at the societal level.

Risks

• The upcoming Super El Niño phenomenon could lead to agricultural output reductions, further pushing up food prices
• Rising global fertilizer prices could increase agricultural production costs, exacerbating food inflation stickiness
• If the second-round pass-through effect of inflation is stronger than expected, it could force the central bank to implement additional rate hikes beyond current forecasts
• April data may contain short-term noise; if subsequent months show a rapid decline, the current policy judgment may be overly hawkish

What to watch

• CPI component data for May and subsequent months, particularly the MoM trends in food and housing/utilities prices
• The wording of the statement and hints regarding Q3 policy from the Bangko Sentral ng Pilipinas (BSP) at its June monetary policy meeting
• The development of the El Niño weather pattern and its actual impact on local crop yields
• The transmission of international crude oil and fertilizer price trends to domestic imported inflation