Declining food costs, led by rice, drove inflation into negative territory for the poorest 30 percent of Filipino households from October 2023 to October 2025, a shift economists say shows how agricultural prices can reshape inequality and consumption patterns.
Jaffar Al-Rikabi, the World Bank's senior country economist for the Philippines, presented the findings during the Philippines Economic Update development dialogue on February 26 in Davao City. The forum gathered regional officials, business leaders, and policymakers to assess economic trends and investment prospects, particularly in Mindanao.
“Inflation for the poorest 30 percent has been negative, driven by declining food prices," Al-Rikabi said.
Rice drives divergence
Rice exerts an outsized influence on low-income households because it takes up a large share of their daily spending. Data in the report showed that falling rice and food prices offset increases in utilities, transport, and other non-food items for poorer families.
National inflation averaged 1.7 percent from January to October 2025, while core inflation reached 2.4 percent. But those headline figures masked sharp income gaps. Higher-income households, with more diversified spending, continued to face positive inflation. Poorer households, whose budgets center on food, saw real price declines.
Economists said the divergence highlights a structural reality in developing economies: agricultural supply conditions can shape income distribution as powerfully as labor markets or capital flows.
Rate-cut room, but farm pressures
Easing food prices pulled overall inflation below target, giving the Bangko Sentral ng Pilipinas room to trim interest rates, potentially stimulating borrowing and investment.
Lower rates could lift retail, construction, and service sectors, where demand strengthens as households regain purchasing power.
But analysts warned of trade-offs. If commodity prices fall faster than production costs, farmers’ margins shrink, placing pressure on rural incomes even as consumers benefit.
Growth slows, outlook steady
The broader economy remains stable but slower. Gross domestic product expanded 5.0 percent in the first three quarters of 2025, down from 5.9 percent a year earlier, as investment softened and services exports grew more slowly.
The World Bank projects growth to average about 5.1 percent in 2025, rising gradually to 5.3 percent in 2026 and 5.4 percent in 2027, assuming reforms continue and global conditions remain manageable. Economists cautioned that risks tilt to the downside, including weaker global demand, climate-related supply shocks, and policy uncertainty.
Mindanao’s role in price stability
Officials at the forum underscored Mindanao’s strategic role in stabilizing food prices nationwide. As a major producer of staple crops, the island’s output directly affects supply and retail prices.
Leo Tereso A. Magno, chairperson of the Mindanao Development Authority, said investments in infrastructure and logistics can cut distribution costs, expand market access, and accelerate poverty reduction.
Stronger farm productivity and supply chains, he said, reinforce the link between regional development and macroeconomic stability.
A segmented inflation landscape
Economists said the most significant takeaway is the growing segmentation of inflation across income groups. For policymakers, food supply management and farm productivity are no longer peripheral rural issues but central pillars of macroeconomic management. For investors, declining staple prices can buoy consumer demand even if overall growth moderates.
Still, analysts warned that negative inflation for the poorest households may prove temporary. Weather disturbances, supply disruptions, or global commodity swings could quickly reverse gains.
The World Bank said sustaining inclusive growth will require governance reforms, credible fiscal consolidation, and structural improvements that protect purchasing power while strengthening production and investment.
Rice prices, long treated mainly as an agricultural indicator, now stand out as a key barometer of inflation dynamics, poverty trends, and policy flexibility in the Philippine economy. DEF