A market vendor arranges fresh produce in this undated photo. An economist forecasts domestic inflation rate to break the 4 percent level this year as oil prices in the international market nears USD100 per barrel because of the conflict in the Middle East. (PNA file photo by Yancy Lim)
As global oil prices climb toward the USD100-per-barrel mark due to ongoing tensions in the Middle East, economists are keeping a close watch on inflation. Still, analysts say the Philippines is better positioned today to respond, with targeted government support and policy tools already in place to help cushion the impact on consumers and the broader economy.
After remaining below target for most of 2025, domestic inflation began to normalize earlier this year. It settled at 2 percent in January, the lower end of the Bangko Sentral ng Pilipinas’ 2 to 4 percent target band, before inching up to 2.4 percent in February—an increase monetary authorities had already anticipated.
With fuel prices now under pressure anew, inflation is expected to move higher in the coming months, echoing the price environment seen during the early stages of the Russia-Ukraine war four years ago. Rizal Commercial Banking Corporation chief economist Michael Ricafort said inflation could potentially rise beyond the BSP’s 4 percent ceiling if elevated oil prices continue to ripple through transport costs, wages, and the prices of other goods and services.
“Inflation would likely go up and could potentially breach above the 4 percent upper range of the BSP’s inflation target, as high oil/fuel prices would lead to higher fares, wages, and other prices of other affected goods and services or second-round inflation effects, leading to faster actual inflation and also higher inflation expectations,” Ricafort said in an interview Saturday.
As of posting time, US benchmark West Texas Intermediate stood at USD98.32 per barrel, reflecting the intensity of global market concerns. Locally, diesel prices are projected to rise by PHP16.60 to PHP17.50 per liter next week, while gasoline prices may increase by PHP7.50 to PHP8.50 per liter.
Despite these expected adjustments, Ricafort noted that the government has a proven playbook to soften the blow of higher oil prices. He said targeted subsidies remain one of the most practical tools to protect vulnerable sectors while preserving fiscal discipline.
“Previous administrations/economic teams used targeted subsidies as alternative amid the delicate balance to reduce pass-through of higher prices/mitigating impact inflationary effects while managing limited financial resources to prevent wider budget deficits and prevent incurring additional borrowings/debt,” he said.
This, he added, gives policymakers room to respond in a way that supports households and businesses without undermining long-term fiscal health.
Ricafort also said the BSP is expected to stay proactive in managing inflation expectations, as it has done in past periods of global price volatility. While monetary policy adjustments may come with trade-offs, these measures are designed to preserve price stability, which remains essential to sustaining long-term growth and broader economic inclusion.
He said such policy moves may again be considered “even if the unintended consequences include slowing down the economy as part of doing all the necessary measures and utilization of all tools needed to fulfill the mandate of price stability or stable inflation to ensure long-term economic growth and development that is more inclusive.”
In February, the BSP’s Monetary Board reduced its key policy rates by another 25 basis points, bringing the target reverse repurchase rate to 4.25 percent, its lowest level in three years. That brought total rate cuts since August 2024 to 2.25 percentage points, signaling the central bank’s continued effort to strike a careful balance between supporting growth and keeping inflation manageable.
While oil-driven price pressures pose a fresh challenge, economists say the country’s policy framework, combined with timely government intervention, could help keep inflation from becoming entrenched and protect the gains the economy has already made.
