AT 7.2% INFLATION spike in April, roughly double the first quarter 3.4% growth rate, the Philippines is falling into stagflation zone — an abrupt wakeup call that the Marcos administration should not ignore, reported Asia Times.
A story of William Pesek at Asia Times said it’s safe to say that the Philippines is Asia’s first Iran war inflationary domino to fall. It’s the vanguard of economic trauma to come — trauma that will only get worse the longer the Strait of Hormuz remains closed.
What worries economists most is how widespread the price increases are proving to be. From food to transportation to utilities, the scale and breadth of increases mean Philippine inflation is likely to top 8% in the second quarter. That makes it a virtual lock that the Bangko Sentral ng Pilipinas (BSP), the Philippines’ central bank, will hike rates in June, he said.
Pesek said South Korea seems to be another domino to watch. “Today, investors learned that consumer prices rose at the steepest pace in nearly two years amid surging oil prices. The 2.6% jump year-on-year compared with a 2.2% rate in March. It greatly increases the odds that the Bank of Korea will hike rates.”
Yet the Philippines’ challenges are far more acute. It’s a reminder of vulnerabilities facing Southeast Asia, which imports nearly all of its oil needs from the Middle East.
“Asian economies rank as the most exposed, including Thailand, Singapore, the Philippines, South Korea and Japan,” says economist Evghenia Sleptsova at Oxford Economics. “These economies have high dependence on imported energy, strong reliance on Middle Eastern supply routes and limited domestic energy buffers.”
Economist Ronald Goseco, director of the Financial Executives Institute of the Philippines, wrote in the op-ed of the Manila Times: “The fuel crisis stressed our dependence on foreign oil. We have not been able to manage the fuel price spikes. We are already seeing the spiraling inflation caused by the oil shock.”
Aris Dacanay, HSBC’s Southeast Asia economist, argues that “the BSP, given its mandate of price stability, can raise rates to up to 6%” from 4.5% now.
Not everyone is worried about the Philippines’ trajectory – or that BSP is woefully behind the curve. “We continue to believe, though, that inflation will return to the BSP’s target range next year as this supply-side shock drops out of the picture,” says Miguel Chanco, economist at Pantheon Macroeconomics in London.
Still, pressure is building on BSP to ensure inflation expectations don’t get out of whack, Pesek said.
In March, as the Strait of Hormuz was closing down and surging oil and fertilizer costs unnerved markets, Marcos Jr declared a national energy emergency. Elevated oil prices and a weaker Philippine peso are a “double whammy that will double inflation in the coming months, hitting millions of poor Filipino families the hardest,” said think tank IBON Foundation.
Gabriel Collins, an economist at Rice University’s Baker Institute, notes that “when oil prices rise over 40% in a matter of days, the effects spread far and wide. In higher-income countries, impacts range from minor inconveniences to more consequential “heat- or- eat” dilemmas, in which households face a trade-off between energy spending and basic needs. In an emerging market like the Philippines, where most people live with little economic cushion, a sharp increase in energy prices can have serious effects.”
Serving as a proxy for oil-dependent developing economies, Collins notes, “the Philippines illustrates how the ongoing Iran war can translate into social, fiscal, and political pressures.”
The conflict is proving particularly consequential for the county because it is doubly leveraged to oil. About 30% of primary energy supply comes from oil, virtually all of it imported.
The Philippine transport system is almost entirely oil-based. In addition, approximately 2.5 million Filipinos work in the Gulf region, earning around $15 billion per year and sending a significant portion of their earnings home as remittances that support families and local economies.
For the Philippines, the stakes are even higher. As David Dichoso of George Washington University wrote in The Diplomat: “The Iran war is not merely an economic shock for the Philippines – it is a strategic stress test of the Marcos Jr administration’s pro-US alignment.”
Economist Julie Chernov Hwang at the Soufan Center, notes that Asia is experiencing shocks and reverberations across multiple economic sectors as a result of the US-Israel versus Iran war. “The negative spillover effects are apparent across energy, food, and labor sectors in South and Southeast Asia,” she says. “The energy crisis is also affecting parts of East Asia.”
Hwang adds that “should the ceasefire break down after the failure of the talks in Islamabad, and if the Strait of Hormuz remains closed, there is an increasing risk that large parts of Asia could face an economic recession. Most dire has been the Philippines, which sources 90% of its oil from the Middle East.”
It’s not clear what Manila can do to shield the economy from these broader risks. Economic Planning Secretary Arsenio Balisacan argues that the government “is intensifying targeted interventions, particularly to temper upward price pressures on food, energy, and transport. Our priority is to ensure stable fuel supply, manageable prices, and adequate protection for all sectors amid ongoing domestic and global challenges.”
That’s an expensive proposition, one complicated by the peso’s 4.1% drop against the US dollar so far this year. The peso’s drop and declines in the Indian rupee, too, speak to how “Asia is facing a larger price and terms of trade shock than global benchmarks imply,” says Priyanka Kishore, chief economist at Asia Decoded. “The consequences for net energy importers are immediate, and pronounced, in terms of weaker external balances, depreciating currencies and higher inflationary pressures feeding into lower real incomes, and eventually, lower output.”
Altogether, Kishore explains, there’s a “notable divergence” within the region on how the supply disruption will be felt, how soon it will be felt and to what degree.
“In our assessment,” she notes, “the physical shortage risks across the oil and gas complex are highest for the Philippines, Vietnam, India and Thailand in the near future. However, pockets of severe disruption may emerge well before an economy reaches its crisis tipping point — as India’s cooking gas shortage shows, leading to sharp demand cutbacks, even as the drag from higher prices materializes simultaneously.
All this has Asian governments, for better or worse, exploring ways to switch to coal. Both Japan and Korea are considering ramping up their idle coal-fired power capacity.
“This,” Kishore says, “can help ease pressure on power generation, but will do little to address shortages of transport fuels or cooking gas. Moreover, not all economies have the headroom to make this switch. Thailand has limited spare coal capacity, Singapore none and the scope for incremental substitution in China, India, the Philippines and Vietnam is modest, given the already high share of coal in their energy mix.”
Investors worry that as the Philippines grapples with rising inflation, political squabbling in Manila might be getting in the way. Earlier this week, the House Committee on Justice found probable cause to impeach Vice President Sara Duterte.
“There are a lot of complicating factors in terms of how our ability to manage the crisis turns into a broader political narrative,” says Bob Herrera-Lim, managing director at Teneo Holdings.
“We can’t disentangle these things from what is happening in the world outside.” And “if Sara’s impeachment pushes forward, does this affect the political calculations around that impeachment?” he asks, noting that the political drama could have “material effects” on the economy.
In 2025, the Philippines grew by 4.4%, short of the government target of 5.5% to 6.5%. As the Philippines moves away from its 7% to 8% growth aspirations, Team Marcos can’t point the finger at US President Donald Trump’s trade war or imported Chinese deflation. The real culprit is chaotic local politics.
Amid the chaos, it’s vital that policymakers in Manila restore households’ collective trust in the economy, says HSBC’s Dacanay. “They’re not just shifting from non-essential to essential spending,” he notes. “They’re cutting back spending altogether,” he said, citing survey data showing more households setting aside savings than before the pandemic.
Clearly, runaway inflation in a time of war won’t help Manila boost confidence. And as the Philippines’ domino wobbles in the weeks ahead, it may be the first but not likely the last in Asia to fall, Pesek concluded.