Heightened oil prices resulting from the Middle East conflict may push inflation to 4 percent as early as April, potentially limiting the central bank’s room for further monetary policy easing, according to Bank of the Philippine Islands (BPI) Senior Vice President and Lead Economist Emilio S. Neri Jr.

In a statement, Neri said the 2.4 percent headline inflation rate for February, reported yesterday, combined with economic pressures stemming from ongoing geopolitical tensions in the Middle East, could cause inflation to accelerate by as much as 1.6 percentage points in the coming months.

“Near term, risks are skewed to the upside,” he said. “Should these trends continue, headline inflation could approach 4.0 percent as early as April. Key swing factors include weather-related supply shocks, rice price momentum, peso volatility, and, critically, oil.”

The Philippine Statistics Authority (PSA) reported that headline inflation rose to 2.4 percent in February, a 0.4-percentage-point increase from January, indicating a faster pace of price increases that could erode purchasing power among Filipino households. Despite the acceleration, the figure remains within the Bangko Sentral ng Pilipinas (BSP)’s forecast range of 2.3 to 3.1 percent and the national target range of 2 to 4 percent for 2026.

“Energy costs added to the pressure, with higher electricity rates and firmer global oil prices, as WTI crude climbed to around $67 per barrel, a seven-month high,” Neri said. “Nevertheless, these upward pressures were partially offset by a sharp correction in vegetable prices. A relatively stronger peso also helped cushion imported inflation,” he added.

The economist noted that the ongoing Iran-related tensions in the Middle East have pushed oil prices significantly higher year-to-date, while domestic rice prices—up 4.0 percent month-on-month following the lifting of the rice import ban in January—have added to inflationary pressure.

“A sustained oil price spike would compound rice-driven pressures and raise the probability of headline inflation tracking closer to 4 percent in the coming months,” Neri said.

“Beyond the direct fuel impact, higher oil prices would feed through transport, power, and logistics, increasing the risk of broader second-round inflation effects.”

The BSP has cited manageable inflation as a key factor behind its decision to cut the target reverse repurchase rate (RRP) twice since December, as policymakers sought to support economic activity following weaker growth amid declining infrastructure investment and softer market sentiment in the wake of the flood control scandal.

In February, the BSP’s Monetary Board approved a 25-basis-point reduction in the RRP. The RRP serves as the central bank’s primary monetary policy tool and benchmark for overnight lending to banks. Changes to the rate influence borrowing costs, liquidity conditions, and inflation trends, and are guided by the BSP’s assessment of inflation dynamics, domestic demand, and global economic developments.

“Inflation remains manageable. Our forecasts do indicate a slight uptick in inflation this year, but this is due largely to supply-side factors. While these factors are largely temporary, they will require continued vigilance with regard to possible spillover effects,” said BSP Governor Eli M. Remolona Jr., who also chairs the Monetary Board.

Lower interest rates increase liquidity in the economy, with the aim of stimulating consumption and investment. However, such easing can also generate inflationary pressures—an issue that Neri said could become more pronounced if global developments continue to push oil prices higher.

He noted that if oil prices remain elevated for an extended period, the possibility of another rate cut this year, which several economists and analysts had anticipated, could be reduced.

“If WTI crude sustains near or above $80 per barrel through June, and/or rice inflation continues to accelerate, the BSP’s easing bias could be materially constrained. If these inflationary pressures persist, the BSP may opt to hold its policy rates rather than pursue additional easing, prioritizing price stability amid heightened external risks,” he said.

However, Neri added that if tensions in the Middle East ease and oil prices stabilize, the BSP could still consider another rate cut later in the year, particularly if economic growth remains weak.

“Under a less pessimistic scenario—where geopolitical tensions de-escalate and oil prices retrace while domestic growth remains soft—the BSP could still pivot toward a rate cut in the second half of the year. Tepid activity, alongside contained second-round effects, would reopen space for calibrated easing,” he said.

Meanwhile, the Department of Finance said the government is preparing measures to cushion the impact of rising fuel prices. These include staggering pump price increases, subsidies for affected sectors, and the possible temporary reduction of value-added and excise taxes on fuel.