Stagflation squeeze leaves Philippine policymakers ‘boxed in,’ report says

MANILA — Philippine economic growth slowed to 2.3% in the second quarter, the fourth straight quarter of deceleration and the weakest outside the pandemic since 2009, according to WR Advisory Group’s second-quarter 2026 risk report.

Inflation hit a three-year high of 7.2% in April and forced the central bank to reverse its easing cycle, the report said.

The combination leaves policymakers “boxed in,” WR said, with Economic Growth Risk rated 12 out of 25 (Elevated, outlook Deteriorating) and Social & Labor Risk rated 9 (Elevated, outlook Stable).

Four quarters of slowing

Growth fell from 4.0% in the third quarter of 2025 to 3.0%, 2.8%, and then 2.3% in the second quarter of 2026, which WR said was released on Aug. 7.

The first-half average of 2.6% compares with a government target of 3.5% to 4.5%.

Growth was 5.5% a year earlier.

An inflation spike, then a slow retreat

Headline inflation rose from 2.0% in January to 4.1% in March and 7.2% in April, then eased to 6.8% in May and 6.4% in June, for a first-half average of 4.8% against the central bank’s 3% target.

Inflation was 6.2% in July, which falls outside the report’s April-to-June window.

Core inflation climbed from 3.9% in April to 4.4% in June and was 4.2% in July.

The Bangko Sentral reverses

After cutting rates by a cumulative 225 basis points to 4.25%, the Bangko Sentral ng Pilipinas (BSP) raised its policy rate by 25 basis points to 4.50% in April and by another 25 basis points to 4.75% in June.

The BSP’s own 2026 inflation forecast has risen to 6.4% from 3.6% earlier in the year.

Jobs: headline gains, big swings

Unemployment edged up from 4.7% in April to 4.8% in May and 4.9% in June, while underemployment fell from 15.2% to about 12%.

The labor force participation rate jumped from 62.7% to 63.8% and then 65.1%, and employment rose from 48.89 million to 50.66 million.

Labor market indicators, April to June 2026

Households feel it

WR’s June survey found 32% of Filipinos had difficulty meeting basic needs daily, up nearly 10 percentage points from March.

Another 29% said they struggled once or twice a week, meaning more than six in 10 had difficulty at least weekly.

The survey had 1,432 respondents, was conducted from June 9 to 16, and has a margin of error of plus or minus 2.6 percentage points.

Some 88% said they were worried about the price effects of the U.S.-Iran war, with 62% fully worried and 26% moderately worried.

The same share, 88%, said fuel and electricity prices had a large effect on them, and 96% reported at least some effect.

About 89% said the government bears at least some responsibility for affordability, and 67% said it bears a large responsibility.

How households responded (multiple answers allowed)

Government measures so far include Executive Order 114, which on April 16 applied to liquefied petroleum gas (LPG) and kerosene only and reverted on July 8.

The National Capital Region’s Wage Order NCR-27, issued on June 23 and announced on June 30, grants PHP 85 a day in two tranches and covers more than 1.1 million workers.

A labor estimate cited by WR puts a family living wage at PHP 1,279 a day.

Transport groups PISTON and MANIBELA went on strike on April 21, with another strike in July.