BSP sees September inflation rising to within 6.4 to 7.4%

The Bangko Sentral ng Pilipinas (BSP) expects headline inflation for September to rise within the range of 6.4 to 7.4 percent as upside risks from the Middle East conflict, as well as elevated prices of select food items, persist.

“Upward price pressures for the month are likely to be driven by weather-related increases in the prices of vegetables, fish, rice, and fruits,” the central bank said in a Wednesday morning statement.

“Increased domestic petroleum prices and depreciation of the peso could likewise contribute to higher inflation. These pressures could be partially offset by lower prices of meat and electricity rates.”

Headline inflation has eased for four consecutive months since April’s three-year high, settling at 6.1 percent in August and falling within the BSP’s projection range of 5.5 to 6.5 percent for the month.

However, tensions in the Gulf flared anew in September. Iran intensified attacks on commercial shipping near the Strait of Hormuz after the US sank five Iranian oil tankers, while a tanker carrying Iraqi fuel oil was hit and set ablaze. Saudi Arabia also shut its East-West oil pipeline after a drone attack, while Houthi forces intensified attacks around Saudi oil infrastructure and the Red Sea, adding risks to alternative export routes.

Last weekend, Trump rejected Iran’s most recent proposal to reopen the Strait of Hormuz and halt regional fighting within seven days, prolonging uncertainty over the restoration of oil flows.

This renewed uncertainty in the Middle East, where the Philippines relies on almost all of its oil imports, saw a series of massive local pump price hikes in September, with a significant number of gas stations in Metro Manila seeing fuel prices climb back into the triple-digit-per-liter range.

The local currency was likewise hampered by the renewed tensions. In September, the peso slid to record lows six times, all within the first two weeks of the month, reaching a nadir of P62.86 on 14 September. Renewed safe-haven demand for the US dollar and global oil prices crossing the $100-per-barrel mark added pressure to the currency, which broke the P62-per-US dollar threshold for the first time in history immediately following the BSP’s August hike and remains there to date.

Combined with adverse weather effects from the rainy season and the anticipation of a severe El Niño event sometime in the fourth quarter, these factors have prompted many economists to predict that the BSP will maintain its tightening bias in the near term as it continues to combat headline inflation, which it projects will exceed its annual 3 percent target for the next three years.