Oil shock brings inflation to 4.1%

By Katherine K. Chan, Reporter

FASTER PRICE INCREASES in fuel, electricity and food including rice, drove Philippine inflation past the Bangko Sentral ng Pilipinas’ (BSP) target for the first time in nearly two years, the Philippine Statistics Authority (PSA) reported.

The consumer price index accelerated to 4.1% in March from 2.4% in February and 1.8% in the same month last year.

This was the quickest pace in nearly two years or since the 4.4% in July 2024 and likewise marked the first time since then that the headline print breached the BSP’s 2%-4% target.

March inflation also came in above the 3.8% median forecast in a BusinessWorld poll of 18 analysts and the central bank’s 3.1%-3.9% estimate for the month.

In the three months to March, inflation averaged 2.8%.

The BSP in a statement said inflation accelerated in March as the Middle East conflict disrupted global oil trade, driving up prices of local fuel, electricity as well as rice.

“Looking ahead, mounting risks to the inflation outlook require sustained vigilance. The BSP will carefully consider incoming data at its upcoming monetary policy meeting to assess the need for action in keeping with its price stability mandate,” the central bank said.

National Statistician Claire Dennis S. Mapa attributed the pickup to faster price increases in the transport index, particularly in gasoline and diesel, which accounted for 54.8% of the overall inflation rate in March.

During the month, transport inflation stood at 9.9%, reversing from the -0.3% clip recorded in February.

This came as soaring pump prices pushed gasoline and diesel inflation to its fastest in over three years at 27.3% (from -5.7%) and 59.5% (from -1.3%), respectively.

Mr. Mapa said the faster transport and food inflation was “definitely” driven by the oil crisis caused by the Middle East conflict.

He noted there were already spillover effects seen in several commodity groups last month including food, housing, water, electricity, gas and other fuels.

“Based on previous years, when we also had spikes in fuel prices in the world market, the impact was quick on other commodity items. That’s why in the 13 commodity groups we track, almost 10 of them rose,” Mr. Mapa told a news briefing on Tuesday.

In March, fuel retailers increased pump prices by as much as P43.50 per liter for gasoline, P67.35 per liter for diesel and P70.90 per liter for kerosene.

Mr. Mapa said he hopes transport inflation in the coming months will not mirror the levels seen in 2022 or when oil markets faced supply and price shocks amid Russia’s Ukraine invasion.

However, he noted that April inflation is likely to accelerate as fuel prices are expected to continue rising this month, adding that some commodities may still reflect the lagged impact of earlier price hikes.

“Definitely we’re seeing higher numbers in April because we had a series of price increases during the first week and we’re not seeing any development that it might go down.”

Meanwhile, inflation for housing, water, electricity, gas and other fuels rose to 4.5% in March from 3.5% in February.

Electricity inflation was faster at 9.2% in March from 6.7% in February, while inflation for liquefied petroleum gas (LPG) quickened to 2.2% from -2.2% in February.

Manila Electric Co. raised electricity rates by 64.27 centavos per kilowatt-hour (kWh) to P13.8161 per kWh for its customers in the greater Metro Manila area. This meant households consuming 200 kWh monthly paid about P129 more in their electricity bill for March.

LPG prices were likewise higher in March, with the household-standard 11-kilogram (kg) LPG tank ranging between P818.62 and P1,128.62, based on data from the Department of Energy.   

According to the Department of Economy, Planning, and Development (DEPDev), the government has secured 165.6 million liters of diesel for April, which it said seeks to “stabilize domestic fuel supply and ease transport costs.”

RICE PRICES SPIKE
Meanwhile, rising transportation costs also sent food prices up in March, with the heavily weighted food and nonalcoholic beverage index heating up to 3% in March from 1.8% in the prior month.

On the other hand, rice prices continued to jump in March, bringing inflation for the staple grain to 3.6% from -3.4% in February.

This was the first time since December 2024 that rice inflation settled in the positive territory or when it stood at 0.8%.

Based on PSA data, the average cost of local regular milled rice climbed by 5.8% to P48.69 per kg in the second half of March from P46.02 per kg a year ago. The price of well-milled rice also went up by 8.02% annually to P56.68 per kg, while the price of special rice rose by 3.79% to P64.07 per kg.

Mr. Mapa said there is a risk that rice prices will go up further in the coming months as transport inflation continues to speed up. 

DEPDev said the government has enforced anti-hoarding for petroleum products and expanded the P20 rice program to ensure ample supply and help bring food prices down nationwide.

PURCHASING POWER FALLS
Meanwhile, core inflation, which excludes volatile food and fuel prices, picked up to 3.2% in March from 2.9% in February and 2.2% a year earlier. This was the fastest core print in two years or since the 3.4% in March 2024.

The peso’s purchasing power, or the value of each P1, also slid to its lowest ever at 75 centavos in March.

This means that the value of P100 in 2018 can now only buy goods and services worth P75.

PSA data also showed that inflation for the bottom 30% of income households quickened further to 4.2% from 2.5% in February and 1.1% last year.

In the National Capital Region (NCR), inflation also accelerated to 3.6% in March from 1.9% in February and 2.1% a year ago.

Outside NCR, consumer prices picked up to 4.2% in March from 2.5% in February and 1.8% last year.

With inflation picking up faster than anticipated, analysts said the case for the BSP’s monetary policy tightening may now have become stronger.

March was the first time in over a year or since February 2025 that the central bank’s forecast missed the actual inflation print.

For Aris D. Dacanay, ASEAN economist at HSBC Global Investment Research, last month’s target breach calls for a policy rate hike to 4.5% at the Monetary Board’s upcoming April 23 meeting.

He noted that they expect the central bank to execute its price stability mandate and address the potential spillover effects of oil shocks even as growth remains muted.

“Though uncertainty looms over the direction of global commodity prices, we think it is important to be ahead of the curve, most especially with the risk in oil prices tilted to the upside,” Mr. Dacanay said in a report on Tuesday.

“Yes, growth was already weak before the oil shock began, and the central bank might decide to ‘look past’ the supply shock. But given the BSP’s core mandate of price stability, we expect the BSP to, at the least, tamp down the potential spillover effects the oil shock may have on non-energy prices,” he added.

Last month, the central bank left its key rate unchanged at 4.25% in an off-cycle meeting, a move BSP Governor Eli M. Remolona, Jr. said aimed to calm markets jolted by the Middle East war.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also sees the BSP raising rates within the year to drive inflation back to its target range as he expects consumer prices to rise further as the war drags on.

“(March inflation was) already above the BSP target range of 2%-4% that could lead to rate hike/s to bring inflation back to the said target range to fulfill the price stability mandate (and) to better manage both inflation and inflation expectations despite largely supply-side driven and external in nature that is beyond the country’s reasonable control,” he said in a Viber message.

Chinabank Research said inflationary pressures will likely persist through yearend but sees the central bank standing pat for now.

“Price pressures are likely to persist for the rest of the year, and second-round effects are expected in food and service activities,” it said in a separate note. “We expect the BSP to hold rates at the meeting this month as inflation remains largely supply-driven without evidence of excess demand.”