[In This Economy] High inflation is back with a vengeance in 2026

The March 2026 inflation figures give us an unvarnished look at how the global oil crisis is beginning to hurt our economy.

Headline inflation shot up to 4.1% from 2.4% in February. That’s a huge jump. It even blew past the own forecast of the Bangko Sentral ng Pilipinas (BSP). The last time we saw a swing this abrupt was during the supply-shock episodes of 2018 and 2022. The parallels are becoming hard to ignore, but this time the shock could be even worse. The Department of Economy, Planning, and Development (DEPDev) said inflation might reach double digits as early as May.

Based on the data released by the Philippine Statistics Authority (PSA), where did the March inflation spike come from? Figure 1 below shows that the answer, as one would expect, involves food and transportation.

Figure 1.

Rice and transportation prices

For several months, food and non-alcoholic beverages had actually been pulling headline inflation down. Last year, rice became cheaper because of imports and the government’s tariff cuts from last year, and these filtered through to retail prices.

That story is now ending. In March 2026, rice flipped back to adding to food inflation rather than subtracting from it (see Figure 1).

Expect this trend to continue. Fertilizers are a big source of worry: the Philippines imports essentially all of its urea and most of its potash, and global fertilizer prices globally are already inching up. Historically, fertilizer shocks take one to two planting cycles to hit retail food prices. So even if we do nothing else wrong, food inflation will likely keep building. Agriculture Secretary Francisco Tiu Laurel warned that rice prices might hit P70 per kilo later this year in the worst-case scenario.

Figure 2.

The second contributor is even more dramatic. Transportation inflation, which had been comfortably negative for most of 2025 (partly because diesel prices had been falling), snapped back violently.

The bulk of the March spike came from one subcategory: “operation of personal transport equipment,” which is a fancy way of saying gasoline and diesel at the pump. In Figure 2 below, this one category’s contribution to transportation inflation alone went from roughly zero to almost 10-percentage points in a single month.

Figure 3.

This is exactly the textbook first-round effect of an oil shock. Pump prices pass through to personal transport costs immediately. Passenger transport services (jeepneys, buses, taxis, TNVS) follow with a lag, because fares need to be petitioned and approved. Food, via logistics, follows after that. We are watching the pass-through unfold in real time.

Even if the war ended today, relief would not be immediate. The Strait of Hormuz still needs to be demined and re-opened, tankers have to be re-routed back through it, and damaged oil and gas facilities in the Gulf have to be repaired and brought back online. 

This means Filipinos should expect elevated fuel and food prices well into the second half of the year.

What the government should (and should not) do

Since the Philippines imports about 98% of its oil requirements, and we are a “price taker” in the global oil market (we can do nothing to unilaterally change prices), let’s focus on what the administration of President Ferdinand Marcos Jr. can do.

The BSP will almost certainly be under pressure to tighten or raise interest rates. But even if they do that, they will not produce a single extra barrel of crude or speed up a single tanker through Hormuz. At best, the BSP can only cool domestic demand at some cost to growth, employment, and the fragile recovery in private investment. A modest, well-communicated tightening is probably on the table in the upcoming meetings of the Monetary Board, the BSP’s highest policy-making body.

With monetary policy feeble in the face of a drastic oil price shock (arguably the worst in global history), fiscal policy is where much of the action needs to be. Here the Marcos administration has been slower than it should have been. Let me outline a few priorities, roughly in order of urgency:

First, scale up targeted financial aid or ayuda — fast. The people hurt most by 4.1% inflation are those for whom food and transport already eat up most of the household budget. Specifically, they’re the poorest 30% of households who actually felt 4.2% inflation in March (slightly higher than the headline inflation rate).

Emergency cash transfers are the cleanest instrument we have, but the Marcos administration needs to beef up the infrastructure so they can deliver aid asap and in a well-targeted manner. Targeting means aid must reach the poorest households but not the non-poor. Otherwise aid won’t be fiscally responsible or sustainable.

Second, expand service contracting for public transport and fuel subsidies for drivers. The Marcos Jr. Cabinet recently endorsed these measures. Frankly, these should have been rolled out two or three weeks ago. The Manila City government’s own service contracting scheme is a useful template.

Third, protect supply chains. That means pre-positioning rice and other staples, securing fertilizer supply contracts now (not next quarter), and coordinating closely with logistics operators so that food keeps moving across our islands even as fuel prices bite.

Fourth, realign the budget. Big-ticket infrastructure projects that have already been slipping can be allowed to slip a little more. The same goes for roads, bridges, and other “hyperlocal” projects that have been the subject of much corruption. The fiscal space they free up should go to direct transfers and subsidies for the poor.

Fifth, begin quietly planning for the possibility of fuel rationing. New Zealand has already published an indicative priority-band framework, from life-supporting services at the top (emergency response, hospitals, lifeline utilities) down to general retail sales at the bottom. Here in the Philippines, we might need to begin drafting a similar plan in case the war drags on and global supply tightens further.

Is there any silver lining in the present crisis?

Well, things could be a lot worse if bad policies are put in place. As I wrote in the past two weeks, the Marcos government must avoid the temptation to implement popular but ill-conceived solutions, such as suspending the fuel excise taxes across the board and implementing fuel price caps. (Notice that President Marcos is sitting on the law that authorizes him to suspend fuel taxes.)

The government must also use this crisis to spur investments in renewable energy. This could come in the form of, say, solar loans for households, grid upgrades, EVs in the public fleet, etc.

Make no mistake: this won’t be the last oil shock in our lifetimes. We need to be a lot more ready when this happens again. We can only do that by if our economy becomes far less reliant on fossil fuels. Now is as good a time as any for a culture change in how we produce and use energy. – Rappler.com

Dr. JC Punongbayan is an assistant professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. In 2024, he received The Outstanding Young Men (TOYM) Award for economics. Follow him on Instagram (@jcpunongbayan).