A delicate balance hangs over the Philippine economy. While the central bank recently began easing monetary policy, a new threat looms – escalating global oil prices fueled by tensions in the Middle East. This surge could abruptly halt, or even reverse, the progress made towards lower borrowing costs.
The potential for a price spike is real. Oil already surged past $100 a barrel, a level not seen since mid-2022, as supply concerns grip the market. Experts predict headline inflation could jump in March and April, driven by rising fuel costs, potentially breaching the 4% mark.
The central bank isn’t ignoring the danger. Governor Remolona has signaled a willingness to raise rates again if oil reaches $100 and the US dollar strengthens – a stark contrast to the easing stance adopted just months ago. However, officials are carefully weighing the situation, remembering the more substantial rate hikes needed during the 2022 oil shock.
Current forecasts anticipate inflation averaging 3.6% this year and 2.8% in 2027, based on relatively stable oil prices. But these projections are fragile. An average oil price exceeding $65 a barrel this year, or $80 in the coming years, could push inflation outside the central bank’s 2-4% target range.
Analysts at Citi Philippines believe oil prices between $80 and $90 could push inflation close to 4% by April. They haven’t even factored in potential second-round effects, like increased transport fares or broader price increases for imported goods. A more bullish scenario, with Brent crude hitting $120 a barrel, could force the central bank’s hand, potentially triggering a 25-basis point rate hike.
The impact isn’t limited to inflation. Pantheon Macroeconomics forecasts a jump in Philippine inflation to 3.3% this month, driven by a significant increase in petrol and diesel costs. Transport inflation alone could leap above 5%, a dramatic shift from the mild deflation seen earlier this year.
The Philippines, heavily reliant on Middle Eastern crude for roughly 98% of its oil imports, is particularly vulnerable. Rising fuel prices threaten not only household budgets but also economic growth. The ongoing conflict could disrupt remittances from Filipino workers in the region and dampen consumer spending.
A four-day workweek, recently announced, may further reduce economic activity and retail sales. The economy has already been struggling, with growth slowing to a post-pandemic low of 4.4% in 2025, hampered by weak investment and a recent corruption scandal.
Despite these headwinds, some believe the situation remains manageable. Pantheon Macroeconomics still expects inflation to stay within the central bank’s target range, predicting a stable repurchase rate of 4.25% for the foreseeable future. However, the coming months will be a critical test of the Philippine economy’s resilience.
