While global oil shocks have yet to fully affect the Philippine economy since the flare-up of United States (US)-Iran military hostilities a month ago, the Bangko Sentral ng Pilipinas’ (BSP) minimum inflation assumption is that March accelerated at the fastest pace in at least 19 months.

Seen as largely driven by oil prices, the BSP has forecast headline inflation to have surged to between 3.1 percent and 3.9 percent. This rate would be significantly higher than both February’s 2.4 percent and March 2025’s 1.8 percent.

Measured against the minimum expectation, March inflation could still emerge as the fastest since the 3.3 percent seen in August 2024, when the BSP’s benchmark rate stood at 6.5 percent, aimed at taming surging price hikes. At the high end of the BSP estimate, the headline rate would be the highest since 4.4 percent in July 2024.

It bears noting, however, that March price movements remain within the four-percent ceiling set by the BSP. Inflation within this target band is deemed manageable and conducive to economic growth.

“Inflation risks have intensified, with upward price pressures arising from the significant increase in domestic petroleum prices, higher rice prices, increased electricity charges in Meralco [Manila Electric Co.]-serviced areas, and depreciation of the peso,” the BSP said in a statement on Tuesday, March 31. The peso plunged to a record-low close of ₱60.69 against the US dollar last Monday, March 30.

The BSP added that lower prices of vegetables, fish, and meat could help temper inflation, but upside risks remain and require heightened vigilance.

BSP Deputy Governor Zeno Ronald R. Abenoja said last week, after a rare off-cycle policy meeting, that the central bank has raised its inflation assumptions for this year and next, taking into account the tremendous pressures stemming from the Middle East.

Price growth in April could eventually overshoot four percent to as high as five percent, Abenoja said.

BSP Governor Eli M. Remolona Jr. said the policy-setting Monetary Board (MB) decided to keep the 4.25-percent policy rate unchanged, as inflation is expected to cool as the dust settles in the ongoing war.

He added that the looming spike in inflation remains supply-driven, for which rate adjustments would offer little support.

“We kept the policy rate steady today because we forecast headline inflation would move back toward the tolerance range by 2027, and inflation expectations remain well anchored,” Remolona said.

Abenoja said 2026 inflation could now average 5.1 percent, up from 3.6 percent previously, and the 2027 print could average 3.8 percent, up from 3.2 percent previously.

Remolona said what would prompt a policy hike is when inflation expectations de-anchor, or when the market no longer believes in future price stability. This can trigger inflationary “second-round effects,” such as demands for higher wages and transport fares.