External shocks are complicating BSP’s fight to keep inflation in check.
The Philippine central bank expects headline inflation to accelerate sharply in April, driven by a spike in oil and transport costs as the conflict in the Middle East disrupts global energy markets. The Bangko Sentral ng Pilipinas (BSP) on Thursday forecast consumer prices would rise between 5.6% and 6.4%, well above its 2%–4% target band and markedly faster than the 4.1% recorded in March.
In a statement, the BSP said inflation risks had intensified on the back of “significantly higher domestic petroleum prices, rising costs of key food items such as rice, fish, and meat, increased electricity charges, and the peso depreciation.” The upper end of its range would mark the quickest pace of price gains since the 6.6% print in April 2023, underscoring how external shocks are complicating the authorities’ fight to keep inflation expectations anchored.
The peso, which earlier in the day slumped to a record low of 61.750 against the US dollar, later clawed back some losses as markets digested the BSP’s outlook and recent rate move.
A weaker currency amplifies imported inflation in a country that sources nearly all of its crude requirements from the Middle East, making it particularly vulnerable to oil price swings when regional tensions flare.
Transportation inflation had already hit 9.9% in March, the fastest since January 2023, with petrol and diesel posting their largest price increases since September 2022.
The central bank noted that easing prices for vegetables and fruits could provide some relief in the near term, but cautioned that “sources of upside price pressures continue to warrant close monitoring.” Those include the evolving situation in the Strait of Hormuz, where Iran’s moves to disrupt shipping lanes after recent military escalations have pushed up global benchmark crude prices and filtered into local pump rates.
Against this backdrop, the BSP last week raised its key policy rate for the first time in more than two years, lifting the target reverse repurchase rate by 25 basis points to 4.5% and signalling that further, smaller hikes remain on the table if price pressures fail to moderate.
The move formally ended an easing cycle that had cut borrowing costs by a cumulative 225 basis points since August 2024, and reflected the Monetary Board’s assessment that average inflation is now likely to breach the 2%–4% goal in both 2026 and 2027.
“The BSP will remain vigilant and guided by incoming data, specifically on inflation and growth prospects,” the central bank said, adding that it would also “continue to monitor developments in the Middle East and their potential impact on oil prices, transport fares, and the broader inflation path.”
Official April inflation figures will be released on May 5, providing investors and policymakers with a clearer read on how far the external oil shock — and what the BSP has effectively called “our pain” from the Iran war disruptions — is feeding through to the wider Philippine economy.