Inflation in the Philippines could breach the midpoint of the target range deemed as manageable price hikes by the second quarter if the global oil shock caused by the war in Iran lingers, according to the think tank Oxford Economics.
Across emerging markets (EMs), including the Philippines, “strong domestic demand and persistence concerns meant inflation risks were skewed to the upside before the Iran conflict, but less so than historic averages because of strong foreign exchange (forex) and benign global inflationary pressures,” said Oxford Economics EM economist Joshua Fisher in a March 9 report.
“Higher oil pressures undoubtedly tip risks towards the upside. Our severe disruption oil shock simulation suggests second-quarter inflation could rise by 0.4 percentage point (ppt) to 1.7 ppts, with Central and Eastern Europe, Chile, and India as the hardest hit” among EMs, Oxford Economics said.
The think tank’s estimates showed that headline inflation in the Philippines may rise by over 0.6 ppt starting next month under the assumption that the war would hike global oil and gas prices by 13 percent and 36 percent, respectively, compared to baseline 2026 projections.
The year-on-year rate of increase in prices of basic goods and services climbed to a 13-month high of 2.4 percent in February, bringing the two-month average to 2.2 percent, above the lower end of the two- to four-percent target range.
National Statistician Claire Dennis S. Mapa told Manila Bulletin last week that over 36 percent of the consumer price index (CPI) basket is directly or indirectly vulnerable to rising oil prices. Energy items such as transport fuels, electricity, liquefied petroleum gas (LPG), and kerosene—accounting for 8.23 percent of the CPI—are most directly affected, while agricultural products, meals outside the home, and road passenger transport, which together make up about 28 percent of the CPI, may face secondary impacts from higher transport and raw material costs.
Oxford Economics said that “any energy price-related shock across most EMs occurs against a broadly benign inflation starting point, which should help contain pressures on EM central banks.”
While Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. warned last week that global oil breaching the $100-per-barrel price level—which already happened—could force the central bank to change course from its monetary easing cycle and instead raise interest rates, Oxford Economics believes that Philippine monetary authorities are likely to maintain the current policy rate of 4.25 percent until the end of the year.
According to Remolona, oil at $100 per barrel could push Philippine inflation to about four percent, breaching the BSP’s tolerance range.
“Despite robust domestic demand, we expected all central banks to hold or cut rates this year except for Colombia. EMs may alter course given the oil shock; Latin America is particularly sensitive if global yields push higher, and Asia is more sensitive to shifts in the Federal Reserve outlook,” Oxford Economics said.
These forecasts are based on Oxford Economics’ latest EMs Risk Survey, conducted quarterly since November 2022, which gathers insights from the think tank’s EM economists on risks to gross domestic product (GDP), inflation, and policy rate forecasts over the next 12 months.
In a separate report, Oxford Economics global macro research director Ben May said that Asia faces some exposure to gas disruptions, but reliance on long-term contracts limits spot price impact, leading to a projected 0.2-ppt average increase in the region’s inflation—slightly less severe than in Europe.
For Oxford Economics, the Gulf Cooperation Council (GCC) will be the most affected region, with energy exports disrupted, tourism flows likely down 11 to 27 percent, and the think tank’s gross domestic product (GDP) growth forecast cut from 4.4 percent to 2.6 percent this year, though a partial rebound is expected in 2027. Millions of Filipinos work in GCC countries, even as the war started by Israel and the United States (US) against Iran is spreading across the Middle East and neighboring regions.
Oxford Economics believes that central banks across the globe are now more vigilant toward energy price shocks, likely adopting hawkish policies to curb inflation expectations despite potential growth softening, as sustained high oil prices and government support measures influence policy decisions, even as Asian central banks are expected to hold course.
“Most Asian economies operate with modest negative output gaps, giving policymakers room to tolerate energy-driven inflation without raising rates. The probable adjustment involves delayed easing rather than new tightening, with fiscal policy, such as fuel subsidies and stabilization funds, bearing much of the near-term burden, albeit weakening public balance sheets,” the think tank said.