The oil price shock resulting from the conflict in the Middle East may trigger spillover inflationary effects in the coming months, according to the Bangko Sentral ng Pilipinas (BSP).

In a statement, the BSP said the surge in March inflation—which rose to 4.1 percent from 2.4 percent in February—highlights upside risks that could spill over to other goods in the Consumer Price Index (CPI), which is used to compute inflation.

“The March 2026 inflation of 4.1 percent settled higher than the BSP’s announced forecast range of 3.1 to 3.9 percent, highlighting the upside inflation risks emanating from the global oil price shock. This was largely driven by higher transport-related costs following the sharp increase in domestic fuel prices, alongside higher prices of key food items, particularly rice,” the central bank said.

“The inflation risk environment has significantly shifted to the upside amid the ongoing conflict in the Middle East. A sharp and prolonged oil price shock could trigger spillover effects with the potential broadening of price pressures to the rest of the CPI basket,” it added.

The CPI measures the average change in prices of a fixed basket of goods and services commonly purchased by households, including food, housing, transport, health, and education. Prolonged elevated oil prices resulting from the conflict tend to ripple across nearly every component of the CPI basket, as fuel is a basic input to both production and transportation—factors the BSP and the Philippine Statistics Authority (PSA) identified as key drivers of March’s inflation acceleration.

Higher fuel costs raise transport expenses—jeepney and bus fares, trucking, and shipping—which then feed into the prices of food and retail goods, as it becomes more expensive to move products from farms, factories, and ports to markets. Oil-linked energy costs, such as electricity and LPG, also push up housing and utility expenses while increasing operating costs for businesses, including restaurants, manufacturers, and schools, leading to broader price increases in services.

Over time, these pressures can generate second-round effects, where wages and inflation expectations adjust upward, making price increases more widespread and persistent across the rest of the CPI basket—an issue the BSP also flagged.

“This could also disanchor inflation expectations and generate further second order impact. Looking ahead, mounting risks to the inflation outlook require sustained vigilance,” it said.

The CPI serves as the country’s primary gauge of inflation, indicating how much more expensive it has become for Filipinos to maintain their standard of living. The PSA uses the CPI in its monthly inflation computations, with 2018 as the base year.

National Statistician Dennis Mapa said that, based on PSA data, P1 in 2018 is now worth only P0.75, indicating that average Filipino purchasing power has declined by about 25 percent over the past eight years.

“The purchasing power of the Philippine peso is inversely related to inflation rate. When inflation increases, the purchasing power of the peso decreases,” he said.

The decline reflects the cumulative impact of rising prices over time, as inflation erodes the real value of money. In practical terms, goods and services that cost P100 in 2018 now require about P133 today—a reality most evident in elevated fuel prices, which remain firmly in the triple-digit-per-liter range in Metro Manila.

The BSP said it will continue to monitor developments in the Middle East conflict, which recently entered a two-week ceasefire, easing uncertainty temporarily as oil prices fell below $100 per barrel following the announcement. US President Donald Trump said the Strait of Hormuz would be reopened during the ceasefire, which could provide some relief for Filipino motorists in the coming weeks.