Manila: The decline in fuel prices to around PHP70 per liter, from nearly PHP150 per liter at the height of the Middle East conflict, is expected to help ease inflationary pressures in the Philippine economy. Domestic fuel prices were reduced by about PHP9 per liter this week as geopolitical tensions in the Middle East eased, following reports of peace discussions between the United States and Iran, which include the possible reopening of the Strait of Hormuz, a key global oil and liquefied natural gas (LNG) shipping route.
According to Philippines News Agency, inflation eased to 6.8 percent in May from 7.2 percent in the previous month, the highest since March 2023, driven mainly by a surge in global oil prices due to supply disruptions. Slower inflation generally benefits consumers by reducing the pace of price increases and preserving purchasing power. However, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort on Tuesday said other factors may continue to sustain inflationary pressures despite lower oil prices.
While the drop in fuel prices is helping ease inflationary pressures, Ricafort said, 'there could be some stickiness in some parts of inflation, such as near record high US dollar/peso exchange rate back to 61.30 levels or higher by more than 6 percent since the start of the said war nearly four months ago that would lead to higher importation costs and overall inflation.' At the start of the week, the peso weakened to the 61-level against the US dollar, partly due to hawkish signals from US Federal Reserve officials, with a potential rate hike seen around September or October this year.
'El Ni±o drought risks until early 2027 could also lead to higher rice and other food prices, thereby could still lead to faster overall inflation than otherwise,' Ricafort said in a message to the Philippine News Agency. Last week, the Bangko Sentral ng Pilipinas (BSP) Monetary Board raised policy rates by 25 basis points to 4.75 percent for the Target Reverse Repurchase rate, citing persistent inflationary pressures. Inflation is expected to breach the four percent upper target band by next year.
Monetary authorities now project average inflation at 6.4 percent this year and 4.5 percent next year. Earlier forecasts placed 2026 inflation at 6.3 percent and 2027 at 4.3 percent. Ricafort said inflation averaging around 6 percent in 2026 could still warrant tighter monetary policy. 'If inflation for 2026 could average at 6 percent levels, there would still be some need to tighten monetary policy/policy rates closer to 6 percent to better manage inflation and inflation expectations,' he said.
Ricafort added that easing global crude oil prices may support expectations of more moderate future BSP policy rate hikes. 'Easing global crude oil prices would support the view of tempered +0.25 future BSP policy rate hike/s in the coming months to provide greater monetary policy stability,' he said. Ricafort also noted that inflation could pick up later in 2026 due to drought risks and potential wage adjustments, while global monetary tightening trends may also influence local policy decisions.
'As year-on-year inflation could still pick up in the coming months, especially in the latter part of 2026 in view of the El Ni±o drought risks and also any impact of higher wages later this year, more hawkish signals by most Fed (US Federal Reserve) officials recently could lead to possible Fed rate hikes in the coming months that could be matched by other global central banks to better manage healthy interest rate differentials,' he said.
