The Bangko Sentral ng Pilipinas (BSP) welcomed the slowdown in inflation in May, but warned that escalating tensions in the Middle East continue to pose a significant threat to the country’s inflation outlook, particularly through higher global oil prices and supply chain disruptions.
Inflation eased to 6.8 percent in May from 7.2 percent in April, coming in below both market expectations and the BSP’s forecast range of 7.1 percent to 7.9 percent. The moderation was largely driven by lower transport costs as domestic fuel prices continued to decline, as well as softer prices of key food commodities, especially rice.
The latest inflation reading offers some relief to consumers and policymakers after months of elevated price pressures. However, the BSP stressed that risks to the inflation outlook remain tilted to the upside.
A key concern is the rapidly deteriorating security situation in the Middle East, which intensified further on Friday after U.S. forces shot down Iranian drones near the Strait of Hormuz and launched strikes on Iranian coastal radar installations in what Washington described as a defensive response. The latest exchange of military action has heightened fears of broader disruptions in one of the world’s most critical oil transit routes.
The Strait of Hormuz handles a substantial portion of global oil shipments, and any prolonged conflict in the area could trigger renewed spikes in crude oil prices, raising transportation and production costs worldwide. For import-dependent economies such as the Philippines, sustained increases in oil prices could quickly feed into higher inflation and put additional pressure on household budgets.
Despite the softer May inflation print, the BSP noted that its baseline projections still point to inflation remaining above the government’s 2 to 4 percent target range in both 2026 and 2027. Inflation expectations have also continued to rise, increasing the risk that businesses and consumers may begin adjusting prices and wages based on expectations of persistently higher inflation.
“The inflation environment continues to be challenging,” the BSP said, noting that price pressures are becoming broader across the economy.
The central bank is now preparing for its June 2026 monetary policy meeting, where policymakers will reassess the country’s economic outlook using the latest inflation data, first-quarter economic growth figures, and developments in both domestic and global markets.
Analysts said the lower-than-expected May inflation reading provides the BSP with some breathing room, but the central bank is unlikely to declare victory over inflation just yet. The recent flare-up between the United States and Iran underscores how quickly geopolitical events can reverse gains made in stabilizing prices.
For now, the BSP is expected to remain cautious, balancing the need to support economic growth while ensuring that inflation expectations remain firmly anchored.
With global energy markets once again on edge, the battle against inflation may ultimately depend not only on domestic conditions but also on developments thousands of kilometers away in the Middle East.