The Bangko Sentral ng Pilipinas (BSP) expects headline inflation to exceed its 2 to 4 percent target range this year and in 2027, as spillover effects from the Middle East conflict spread to other goods and services.

Speaking at a Thursday press conference, BSP Governor Eli M. Remolona Jr. said the worsening inflation outlook was a key factor behind the central bank’s decision to raise the target reverse repurchase (RRP) rate by 25 basis points.

“Headline inflation is now projected to breach our tolerance range not just this year, but in 2027 as well. Inflation expectations are rising further, increasing the risk that they will become unanchored,” he said.

Inflation—which tracks the average change in prices over time—accelerated to 4.1 percent in March, driven by elevated fuel prices and transport costs following the escalation of the Middle East conflict early last month. Domestic pump prices remain significantly higher—by around 60 percent compared with pre-conflict levels—raising the risk of broader spillover effects into other goods and services, as previously flagged by the BSP.

BSP Deputy Governor Zeno Abenoja attributed the upward revision in the inflation outlook to “broadening price pressures across the CPI, as well as domestic and global oil prices.”

“So the inflation forecast for 2026 is seen at 6.3 percent, and then for 2027, an average inflation of 4.3 percent,” he said.

“We have seen impacts on transport and rising fertilizer prices, and these are explicitly incorporated in the latest central forecast,” he added, noting that the BSP now projects 2027 inflation at 4.3 percent—above the target range—due to lingering effects of the conflict.

If the BSP’s 2026 inflation forecast materializes, it would mark a sharp increase from 1.8 percent in 2025, which had fallen below the target range and provided room for the central bank to cut rates in December 2025 and February 2026 to support economic growth.

Despite the elevated inflation outlook, Remolona said the BSP still expects economic growth to remain “very similar” to the 4.6 percent projection issued in its February meeting, with growth likely to approach 6 percent next year.

“The narrative will still be the same. Most of the growth this year will be coming from the second half. Fiscal policy will contribute,” he said.