Inflation may have surged to as high as 7.9 percent in May, driven by soaring basic commodity prices and the weakening local currency, according to the Bangko Sentral ng Pilipinas (BSP),

Amid intensifying macroeconomic headwinds, global supply shocks filter into the domestic economy, the central bank over the weekend estimated that May inflation likely settled within a range of 7.1 percent to 7.9 percent.

If the headline figure hits the upper bound, it would mark the fastest pace of price increases in more than three years, dating back to the 8.6 percent reading recorded in February 2023. It follows a volatile historical trend; the country's average inflation rate of six percent in 2023 was already the highest since the 2008 global financial crisis.

Monetary authorities attribute the current price pressures to escalating costs for key agricultural staples, including rice, vegetables, and meat, compounded by a sharp depreciation of the peso.

Global geopolitical friction initially triggered the supply disruptions, specifically military hostilities involving the United States (US) and Iran that compromised critical energy shipping lanes. The domestic fallout was swift. Inflation breached the government’s four percent target ceiling in March at 4.1 percent before accelerating to 7.2 percent in April, signaling that second-round effects from the Middle East conflict have rapidly materialized.

While the BSP noted that recent rollbacks in domestic fuel prices, cheaper fish, and minor reductions in electricity rates provided a partial cushion, the broader outlook remains skewed to the upside.

Last month, the central bank aggressively raised its full-year inflation forecasts, shifting its 2026 projection to 6.3 percent from 5.1 percent, and its 2027 estimate to 4.3 percent from 3.8 percent. Both figures remain stubbornly above the official target comfort zone. A 6.3 percent average for 2026 would represent an 18-year high, matching levels not seen since the global food and rice crisis of 2008.

Private sector analysts broadly mirror the central bank’s concern, with some tracking even higher trajectories. Philippine National Bank and MUFG Bank Ltd. both forecast May inflation to hit right percent, driven by what PNB chief economist Alvin Arogo terms a persistent supply shock.

Analysts at MUFG noted that the Philippines, alongside regional peers Indonesia and Thailand, is highly vulnerable to import-led inflation as weaker currencies magnify the cost of dollar-denominated fuel and commodities.

Currency volatility remains a core vulnerability for the import-dependent nation. The peso recently tumbled to a historic low of ₱61.75 against the US dollar, driven by safe-haven capital flows toward the greenback and heightened domestic market anxiety.

Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., expects May inflation to hit 7.8 percent, citing the combination of supply constraints, weather disruptions, rising freight costs, and the fading of favorable base effects.

The upcoming inflation data from the Philippine Statistics Authority, scheduled for release on Friday, will be a critical determinant for monetary policy. MUFG expects the BSP to deliver a total of 75 basis points in interest rate hikes for the remainder of 2026, lifting the benchmark rate from its current 4.5 percent to 5.25 percent.

The Japanese lender sees a strong probability of a “jumbo” 50-basis-point increase at or before the central bank's June 18 policy meeting.

However, some economists urge caution against aggressive monetary tightening, warning of severe collateral damage to economic growth. PNB's Arogo argues against an off-cycle rate hike, stating that raising borrowing costs to fight supply-driven inflation could further damage consumer and business confidence, which have already shown signs of strain in first-quarter gross domestic product data.

He emphasized that with a material economic slowdown looming in the coming quarters, future rate decisions must remain growth-supportive.

The broader macroeconomic outlook reflects these rising stagflationary risks. Capital Economics projects full-year Philippine economic growth to slump to 2.9 percent in 2026 before staging a recovery in 2027. Excluding the anomalies of the 2020 pandemic contraction, a 2.9 percent expansion would represent the weakest economic performance for the Philippines since the 1.4 percent growth rate recorded in 2009.

Gareth Leather, senior Asia economist at Capital Economics, anticipates full-year inflation will peak at 6.4 percent this year before normalizing to 3.8 percent in 2027. To combat this mix of slow growth and high inflation, Leather expects the BSP to implement 50 basis points of additional hikes this year before reversing course and easing the benchmark rate back to 4.5 percent by 2027.