DBS Group Research, led by economist Radhika Rao, highlights mounting inflation risks in both the Philippines and Indonesia, driven primarily by food, fuel, and currency weakness. In the Philippines, inflation is forecast to rise above 8% year-on-year, up from 7.2% the previous month, significantly exceeding the Bangko Sentral ng Pilipinas’ (BSP) target band of 2.0-4.0% [1]. Key contributors to this surge include increases in food prices (rice, vegetables, meat), domestic fuel price hikes compared to last year, and a weak currency. However, there has been some easing in sequential pressures due to a rollback in domestic fuel prices, moderation in certain food segments, and slightly lower utility rates [1]. DBS expects the BSP to tighten domestic rates further this year in response to these inflationary pressures [1].
In Indonesia, May inflation accelerated to 3.1% year-on-year from 2.4%, propelled by higher food and energy costs, though it remains within Bank Indonesia’s (BI) target band of 1.5-3.5% [2]. Market-driven price adjustments, particularly in volatile segments such as cooking oil and chillies, rose sharply to 6.2% year-on-year from 3.4% the previous month, alongside increases in administered and energy sub-indices [2]. Despite steady pump prices, the April trade surplus shrank dramatically to $89 million from $3.3 billion in March, marking the smallest surplus in nearly six years. This contraction was attributed to a surge in crude oil imports (up 67.5%) and refined fuel imports (up 88%) [2].
DBS notes that absent fuel price adjustments, higher global prices and a weak rupiah are likely to weigh on Indonesia’s trade balance and current account. The report warns that headline inflation could breach BI’s target if the West Asia conflict persists, and expects further domestic rate tightening by Bank Indonesia this year as inflationary pressures and external risks remain elevated [2].
Both reports emphasize that inflation outcomes are shaped by policy frameworks, subsidy support, and pass-through mechanisms. The expectation of further rate hikes in both countries underscores the seriousness of inflationary pressures and the central banks’ commitment to maintaining price stability [1][2].
CONCLUSION
DBS Group Research anticipates continued rate tightening by both the BSP and BI as inflation in the Philippines and Indonesia rises on food, fuel, and currency pressures. The Philippines faces inflation well above target, while Indonesia’s inflation is nearing the upper end of its target band amid a shrinking trade surplus. Market participants should prepare for heightened monetary policy action and ongoing inflation risks in both economies.