The Philippines remains among Asia’s inflation hot spots as renewed Middle East tensions and extreme weather threaten to intensify energy and food price pressures.

The Philippines remains among Asia’s inflation hot spots as renewed Middle East tensions and extreme weather threaten to intensify energy and food price pressures.

Based on the three-month moving average monitored by Singapore-based United Overseas Bank Ltd. (UOB), “inflationary pressures appear most acute in Vietnam, Philippines, and Taiwan,” with prices higher relative to historical normal levels—highest in Vietnam, followed by the Philippines, then Taiwan, UOB associate economist Jester Koh said in an Aug. 25 report.

These inflationary pressures stand in stark contrast with those in the United Kingdom (UK), Japan, and Singapore, whose inflation rates are calmer than historical normal levels.

Despite headline inflation slowing to 6.2 percent in July, the print remains in the bracket of concern. Inflation rates since the flare-up of the United States (US)-Iran war have hovered above the four-percent inflation target ceiling.

Based on the three-month moving average monitored by Singapore-based United Overseas Bank Ltd. (UOB), “inflationary pressures appear most acute in Vietnam, Philippines, and Taiwan,” with prices higher relative to historical normal levels—highest in Vietnam, followed by the Philippines, then Taiwan.

These inflationary pressures stand in stark contrast with those in the United Kingdom (UK), Japan, and Singapore, whose inflation rates are calmer than historical normal levels.

In an Aug. 25 report, UOB associate economist Jester Koh noted that despite headline inflation slowing to 6.2 percent in July, the print remains in the bracket of concern. Inflation rates since the flare-up of the United States (US)-Iran war have hovered above the four-percent inflation target ceiling.

Even so, general price relief in emerging markets (EM) supported the easing of global inflation, which softened to 2.9 percent from three percent in June. This came as EM inflation inched down to 3.3 percent from 3.5 percent a month ago.

In contrast, developed markets (DM) experienced an acceleration to 2.6 percent from 2.5 percent in June.

A fleeting drop in Brent crude oil prices to around $70 a barrel in early July offered some relief, but re-escalating tensions in the Middle East have driven oil prices back above $90 a barrel, threatening to further stoke consumer energy prices.

Economic headwinds also stem from extreme weather events weighing on agricultural productivity, threatening to accelerate food inflation.

“Within Association of Southeast Asian Nations (ASEAN)-6, inflationary pressures remain elevated in Vietnam and the Philippines, while conditions are relatively benign in Singapore and Malaysia,” UOB said.

Bank of America (BofA) noted that local inflationary pressures remain elevated despite recent slowdowns from the April peak of 7.2 percent. As the Philippines and Indonesia are both sensitive to oil prices and the greenback, BofA believes their respective central banks’ policy moves will largely depend on oil price fluctuations and foreign exchange movements.

For the Philippines alone, BofA economists are betting on the Bangko Sentral ng Pilipinas (BSP) to raise key borrowing costs by a quarter-point to five percent on Thursday, Aug. 27. The lender believes the anticipated hike would mark the last increase, as the economy is still on a downward trajectory.

“However, the market’s pricing in 50 basis points (bps) of cumulative hike over six months suggests market-implied expectation of an extension of the hiking cycle beyond the upcoming meeting,” BofA said.

Manulife Investments Philippines said in an Aug. 26 commentary that the BSP stands ready to further adjust interest rates to anchor the Philippine peso and domestic price movements.

Jean Olivia De Castro, head of fixed income at Manulife Investments Philippines, cited monetary authorities’ priority of keeping inflation expectations and the peso anchored amid struggling gross domestic product (GDP) growth.

“Against this backdrop, the BSP is staying data dependent and is prepared to keep rates elevated or raise them a bit more if oil and food prices reignite inflation,” De Castro said. The BSP has already increased the benchmark rate twice to the current 4.75 percent.