The Philippines remains at risk from inflationary pressures as a prolonged oil shock continues to ripple through various sectors, including transportation, electricity, food, and fertilizer costs, according to a recent report.
Higher transportation, electricity, and agricultural costs can contribute to broader inflationary pressures, particularly in food and household costs, said a research head. Headline inflation has been above the central bank's target since March, following the commencement of hostilities in the Persian Gulf in late February.
Although headline inflation eased to 6.4% in June from 6.8% in May, bringing inflation to an average of 4.8% in the first half, core inflation, which excludes volatile food and fuel prices, rose for a sixth straight month in June to a 31-month high of 4.4%.
The Philippines' reliance on oil imports makes it highly vulnerable to price fluctuations in the global oil market, noted an analyst. Sustained increases in global energy costs typically translate into higher pump prices and transportation expenses.
High fuel prices also lead to costlier electricity rates and fertilizer prices, with the latter bringing additional pressure on food prices. Weather-related risks and competition from imported products may compound these challenges.
The Manila Electric Co. hiked electricity rates for a second consecutive month in July to P14.8261 per kilowatt-hour from P14.4833 a month earlier. The conflict in the Persian Gulf serves as a reminder that the situation remains unresolved, and oil prices will continue to attract attention.
The consequences for the Philippines could eventually manifest as higher fuel and electricity costs, more expensive agricultural inputs, firmer inflation, and shifting market expectations, said the analyst. Energy shocks also risk fueling expectations of higher interest rates and bond yields, as well as tightening consumer spending amid heating inflation.
The central bank has raised its key interest rate by 50 basis points to 4.75% since the Middle East war broke out, and markets continue to price in further tightening as the central bank remained hawkish, cautioning against strong inflationary pressures.
