Philippines wage hike: Catch-up, not spiral

Research evidence excerpt

Philippines wage hike: Catch-up, not spiral

6 July 2026

Asia Economic Notes

challenge, firms may also seek to mitigate cost pressures through

process optimization, especially as AI has become more accessible.

• Weak consumer sentiment and demand limiting price passthrough.

Beyond the initial labor supply cost pressure, the ability of firms to pass

on increased costs is constrained by fragile consumer demand. The

BSP’s Consumer Expectations Survey indicates that current quarter

consumer sentiment is the weakest since COVID, and the outlook for the

next 12 months is the lowest since 2009. (Figure 3) Firms may opt to

absorb a significant portion of the labor cost increase rather than risk

losing price-sensitive consumers, thereby limiting the passthrough of

these higher labor costs to final prices.

Figure 3: Consumer sentiment weakest since previous Figure 4: Wage hikes likely a catch-up to inflation shock,

crises periods not vice versa

Source: Deutsche Bank Research, Haver Analytics Source: Deutsche Bank Research

The reverse seems to have a stronger effect. That is, an inflation shock leads to a

wage hike, as per the sequence of events in reality, and the impact is larger in

both magnitude and persistence. (Figure 4) This aligns with the typical process

where Philippine labor boards consider past inflation data when determining

minimum wage adjustments, aiming to restore purchasing power rather than

initiating a new inflationary cycle. In other words, wages react in a catch-up cycle.

• This is further supported by Granger causality tests, where the p-value

for headline inflation Granger-causing wage increases (0.17) is

substantially lower than wage hikes Granger-causing inflation (0.60),

suggesting a relatively stronger indication of causality in the former