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.”

Faster pace of price increases

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) 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.

Ongoing Iran-related tensions

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 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.