Inflation may spike to as high as 4.0 percent in the coming months due to rising oil prices stemming from the Iranian conflict in the Middle East, according to Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri Jr.

In a statement, Neri outlined the potential near-term effects of the ongoing conflict on the local economy, citing possible broad-based price increases as global oil prices climb.

“The escalation introduces a renewed geopolitical risk premium into global markets, primarily via oil. For the Philippines, higher energy prices compound already elevated rice-driven inflation risks, potentially pushing headline inflation toward 4% in the coming months,” he said.

Neri’s comments come ahead of the February inflation data, which will be released by the Philippine Statistics Authority (PSA) this Thursday. The PSA previously reported headline inflation in January at 2.0 percent, up 0.2 percentage points from the previous month and within the central bank’s forecast range. The modest uptick was attributed to faster annual increases in the prices of housing, water, electricity, gas, and other fuels.

Despite the projected rise, Neri’s forecast remains within the upper end of the 2 to 4 percent target range for headline inflation. Based on BPI’s preliminary data, the bank expects headline inflation to accelerate to 3.0 percent this month and average 3.7 percent for the full year.

Neri added that further rounds of global oil price hikes resulting from the Iran situation could create second-round inflationary effects beyond fuel and food.

“A renewed leg higher in global oil prices would amplify second-round effects through transport, electricity, and logistics costs, potentially broadening inflationary pressures beyond food and fuel,” he said.

The US-backed invasion of Iran has led to the effective closure of the Strait of Hormuz, which Neri noted accounts for roughly 20 percent of the world’s oil supply and 30 percent of globally traded crude. He said Brent crude prices could spike as high as $120 per barrel if the strait remains closed for a prolonged period.

“Iran has reportedly begun restricting activity in the strait, raising concerns over potential supply disruptions. Even without physical interruption, geopolitical risk premiums have already lifted crude prices materially,” he said.

“Under a moderate escalation, oil prices are expected to climb toward the $75–$80 range. However, in a more severe disruption—such as a prolonged blockade of the Strait of Hormuz—prices could surge significantly higher, potentially reaching $100–$120 per barrel, with this outcome currently estimated at around a 33% probability,” he added.

Meanwhile, Neri said BPI maintains its projection that the peso will continue to depreciate amid recent developments, forecasting the currency at P59.70 per dollar by year-end.

“Amid the foregoing developments, we maintain our depreciation bias on the peso, with our year-end forecast set at P59.70,” he said. “Markets are now pricing in a significant risk premium. While the probability of full-scale war remains limited—estimated at around 33% by some analysts—volatility in oil, safe-haven flows into the USD, and fluctuations in global bond yields are likely to persist in the near term.”

Neri’s views echo comments made Sunday by Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael Ricafort, who told DAILY TRIBUNE last Sunday that the foreign exchange market may see similar developments as a result of the conflict, potentially weakening the peso, which has moved back above the P58 level at press time.

“There could be some shift to safe havens until the dust settles, as a matter of prudence to hedge various risk exposures to be on the safe side,” Ricafort said.