Economic analysts see a possible uptick in inflation and moderate growth in consumption activities in the near term amid geopolitical tensions between Iran and Israel.

Jonathan Ravelas, senior adviser at financial and tax consultancy firm Reyes Tacandong & Co., said prices of basic goods and services might rise as Iran retaliates against recent U.S.-led bombings on its nuclear sites in Fordow, Natanz, and Isfahan.

In coordination with Israeli officials, U.S. President Donald Trump said the attacks were deployed successfully.

"This escalation raises concerns about potential disruptions in global oil supply, especially if the Strait of Hormuz, a critical shipping route, becomes a conflict zone or is compromised," Ravelas said.

According to the Economic Research Institute for ASEAN and East Asia, the Philippines imports more than 80 percent of its crude oil from the Middle East.

"This would directly increase the cost of gasoline, diesel, and electricity in the country. Higher fuel costs typically lead to increased transportation and production expenses, which can drive up the prices of goods and services," Ravelas said.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Zeno Abenoja said overall inflation for this year might slow to 1.6 percent from 2.4 percent. He said the main factors for the decline include higher production by the Organization of the Petroleum Exporting Countries and weaker global demand for fuel.

However, Abenoja said the outlook for next year and for 2027 might reach 3.4 percent and 3.3 percent, respectively, as the armed conflict between Middle Eastern countries persists.

"A surge in oil prices could widen the Philippines' trade deficit, as the cost of imports rises. Sectors like manufacturing, logistics, and agriculture could be particularly affected," Ravelas said.

Despite upticks in global oil prices, global investment bank Citi said current levels have remained near $71 per barrel—lower compared to the average of $80 per barrel last year.

"That said, Citi’s base-case so far does not expect a major oil supply disruption which would further stretch the $10-$15/bl risk premia already embedded in Brent crude oil prices (which was at $75/bl at the time the premia was estimated)," the bank said.

Overall inflation last month dropped to 1.3 percent from 2.9 percent in January, resulting in an average of 1.9 percent for the first five months, according to the Philippine Statistics Authority. All figures fell within the BSP’s 2 to 4 percent target range.

Dovish monetary policy

Under a relatively stable global economy, Citi expects the BSP to implement three more policy rate cuts this year through the first quarter of 2026. The bank said reductions might be announced in August and October.

Last Thursday, the BSP eased its policy rate by 25 basis points to 5.25 percent following declines in the prices of rice, transport, and electricity.

If global oil prices climb toward $85 per barrel by year-end, Citi said the BSP will likely increase its inflation forecast by 30 basis points.

"While not necessarily derailing our expectation for an August cut given still currently high levels of real policy rates, it would increase the risk that our expectations for an October and first quarter of 2026 cut not materializing," the private bank said.

Sub-target economic growth

HSBC Global Private Banking and Premier Wealth Chief Investment Officer for Southeast Asia and India James Cheo projects the Philippine economy will expand by 5.6 percent on average this year, slightly faster than the 5.4 percent recorded in the first quarter.

However, the outlook falls short of the Development Budget Coordination Committee's minimum target of 6 percent, announced during its 189th meeting in December 2024.

"The Philippines growth remains healthy, driven by domestic consumption which makes up nearly three-quarters of the economy," HSBC said.

National data showed household consumption rose to 5.3 percent in the first quarter, up from 4.6 percent last year.

Cheo expects continued strong consumer spending, as the peso is projected to remain competitive against the U.S. dollar at P55 by year-end, "supported by monetary easing and a stable macroeconomic backdrop."

However, Ravelas warned that domestic consumption could soften if tensions in the Middle East halt economic activity by overseas Filipino workers (OFWs). Government data show there are more than 2 million OFWs residing in the region.

"Escalating conflict could endanger their safety and disrupt employment, which in turn could affect remittance flows—a vital source of income for many Filipino families," he said.