The Philippine central bank has warned that headline inflation may remain above its target for an extended period if price pressures worsen due to the looming El Niño season, renewed conflict in the Middle East, and potential de-anchoring of inflation expectations.
In its latest Monetary Policy Report, the central bank outlined a "high-inflation scenario" where headline inflation moves further away from its 3% target over the medium term. This scenario suggests the need for a tighter monetary policy stance to contain sustained cost-push shocks.
The central bank identified potential risks under this scenario, including oil supply shortages, renewed escalation in the US-Israel war on Iran, costlier rice due to El Niño, and de-anchoring of inflation expectations. These factors could contribute to sustained price pressures.
In contrast, the central bank's low-inflation scenario shows inflation elevated only in the near term, with price pressures fading by next year. This may occur if global oil prices drop to a full-year average of $80 per barrel in 2026 before falling further to $70 per barrel in 2028.
The low-inflation scenario also assumes that expectations of sluggish consumption and investments amid weak sentiment could ease price pressures. The central bank noted that some policy tightening in 2026 remains necessary, but the required tightening is less than that implied by the central projection.
The central bank expects inflation to accelerate sharply to 6.4% this year from 1.7% last year, before easing to 4.5% in 2027 and 3.1% in 2028. This forecast highlights the challenges ahead in maintaining price stability.
