The Bangko Sentral ng Pilipinas (BSP) expects inflation to rise within a range of 3.1 percent to 3.9 percent as the country braces for the first round of macroeconomic impacts from the Middle East conflict.

In a statement, the central bank said headline inflation could increase by as much as 1.5 percentage points from February’s 2.4 percent, driven mainly by “the significant increase in domestic petroleum prices, higher rice prices, increased electricity charges in Meralco-serviced areas, and depreciation of the peso.”

“The anticipated lower prices of vegetables, fish, and meat may help temper inflation, but upside pressures continue to warrant close monitoring,” the statement added. The BSP’s projection for March remains within the annual target range of 2 percent to 4 percent.

The BSP’s Monetary Board recently convened an off-cycle meeting to address the economic headwinds stemming from the ongoing US-backed conflict in the Middle East — which has resulted in significant casualties, soaring oil prices and a weaker peso that has fallen to record lows against the dollar.

Last Thursday, the central bank’s policymakers decided to keep the key policy rate steady, citing well-anchored inflation expectations and the limited effectiveness of monetary policy in addressing supply-side shocks caused by the conflict.

The BSP had earlier reduced its target reverse repurchase (RRP) rate twice in recent months in response to the negative impact of the flood control scandal on the economy. Growth remains subdued as the effects of last year’s corruption issue linger — with BSP Governor Eli M. Remolona Jr. noting that raising rates at this point could further delay recovery.

“We also project growth to remain weak. In that regard, to raise rates at this time would be painful,” he said.

However, lower interest rates can add to inflationary pressures by increasing money supply, a mechanism intended to stimulate demand through consumption — the main driver of the Philippine economy. Remolona noted, however, that demand remains weak due to last year’s scandal, and that inflation expectations remain “well-anchored” even as the Middle East crisis continues to push oil prices higher.

Due to the conflict’s impact on domestic oil prices and its spillover effects, the BSP revised its full-year 2026 inflation forecast to 5.1 percent — above the target range — although it expects inflation to return within target by 2027.

Meanwhile, Bank of the Philippine Islands (BPI) Lead Economist and Senior Vice President Emilio S. Neri Jr. said he expects March inflation to settle at the upper end of the BSP’s forecast range at 3.9 percent.

“Headline inflation likely accelerated to 3.9% [year-on-year] in March (from 2.4% in February), with [month on month] inflation estimated at 1.2%, reflecting a notable jump in price pressures driven by a sustained rise in rice prices along with a sharper-than-expected pass-through from oil,” he said.

“Food and utilities are reinforcing these cost-push pressures. Rice prices were already on an upward trajectory prior to the latest shock amid elevated import costs, logistics constraints, and tighter domestic supply. The recent surge in oil prices has only exacerbated this trend, accelerating MoM gains and reinforcing upside risks to food inflation,” added Neri.