FOR A COUNTRY whose economy is heavily dependent on imported petroleum products, the Philippines seemed headed to what looks more like an “inevitable circumstances” amid an ongoing conflict in Middle East Asia.
However, economist Arsenio Balisacan, in his capacity as Secretary of the Department of Economy, Planning, and Development (DepDev), doesn’t seem worried over a conflict which he claimed had a “minimal” impact on the Philippine economy.
Echoing Balisacan’s assessment is Acting Energy Secretary Sharon Garin, who insisted that there is no reason for the public to be worried, at least for now — “The impact is so minimal on our economy that it doesn’t seem alarming as of now, as long as [global oil prices] don’t increase or the conflict worsens.”
‘[T]he Philippines is highly vulnerable to inflation because of its high-dependence on imported petroleum products, including crude oil … Likely to speed up inflation, as we import oil primarily … can trigger price increases down the line.’
FITCH RATINGS
However, Fitch Ratings director Krisjanis Krustinsbegged to disagree.
According to Krustins, oil prices significantly contribute to inflation in the Philippines, which for the longest time has been heavily dependent on oil imports.
“Oil prices are a significant contributor to inflation in the Philippines. Our analysis suggests that a 10% oil price shock contributes 0.3-0.4 percentage point (ppt) to headline consumer price index, all else equal,” Krustins said.
Sought to elaborate, Krustins said that the “final impact” of the war will rest on the duration and size of the oil price shock.
INFLATION SPIKE
In view of threats to shut down the vital Strait of Hormuz, where 20 percent of the world’s petroleum supply on board ocean-going oil tanker ships are passing through, the price of crude oil has become “unpredictable.”
According to Percival Peña-Reyes, director of the Ateneo Center for Economic Research and Development, the Philippines is highly vulnerable to inflation because of its high-dependence on imported petroleum products, including crude oil.
“Likely to speed up inflation, as we import oil primarily. Oil, being a production input that links to many other industries, can trigger price increases down the line,” Peña-Reyes said in a report.
UNCERTAIN TIMES
S&P Global Market Intelligence Principal Economist Harumi Taguchi for her part said inflation could settle to 2.3 percent in the second half and less than 2 percent for the full year.
“The situation is still uncertain, but assuming the oil prices stay around the current $75 per barrel and the peso remains at the current level through this end of the year,” Taguchi told Money Talks anchor Cathy Yang in an interview.
If oil prices surge to over $100 per barrel, inflation will likely accelerate to over 4 percent in the first half of 2026, she said.
BANK WARNINGS
Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona, Jr. earlier warned that rising global oil prices and the weakening peso could bring inflation to 5 percent, breaching the 2-4 percent target range.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort projected a 0.5-0.7-ppt increase in inflation if crude oil prices remain elevated.
“The resulting higher local fuel pump prices would lead to higher prices of other goods and services, passing the effects of higher world crude oil prices and weaker peso recently, thereby could lead to some pickup in overall inflation,” Ricafort said in reference to the first tranche of the oil price hike — P3.50 per liter for gasoline, P5.20 for diesel and P4.80 for kerosene.
DOMINO EFFECT
GlobalSource Partners Country Analyst Diwa Guinigundo warned that a sharp increase in petroleum prices could trigger higher prices for food and non-food commodities.
“If JPMorgan’s oil price forecast of between $120 and $130 per barrel materializes over a prolonged period, it’s likely that we see a breach of the 2-4 percent inflation target,” Guinigundo, former deputy BSP governor, was quoted in the BusinessWorld report.
He also hinted at second-round effects on wages and transport fares.
Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the crude oil price trend is “not yet explicitly inflationary,” noting Brent crude remains 9% lower year on year.
“Reassuringly as well, oil futures still point to prices starting to calm down from September onwards,” Chanco assured, adding that the risks to inflation globally, and not just the Philippines are now skewed to the upside.
WORSE THAN 2022
Peña-Reyes warned that the inflationary impact could be similar or “possibly worse” compared to the Russia-Ukraine war, which started in 2022.
During the onset of the war in late February, Philippine inflation spiked to 4 percent in March followed by 4.9 percent in April. It further stretched to 8 percent levels in November and December.
“It’s possible to see a similar situation that we saw during the Russia-Ukraine if this war is escalated with both the participation of Europe aside from the US as well as those more sympathetic to Iran like China and Russia,” Guinigundo averred.
