Fuel prices in the Philippines have declined to approximately P70 per liter from nearly P150 per liter at the peak of the Middle East conflict, a move expected to help ease inflationary pressures in the economy.
Fuel price cuts and inflation
Domestic fuel prices were reduced by about P9 per liter this week as geopolitical tensions in the Middle East eased, following reports of peace discussions between the United States and Iran, which include the possible reopening of the Strait of Hormuz, a critical global shipping route for oil and liquefied natural gas (LNG).
Inflation slowed to 6.8 percent in May from 7.2 percent in the previous month, which was the highest since March 2023, driven mainly by a surge in global oil prices due to supply disruptions. Slower inflation generally benefits consumers by reducing the pace of price increases and preserving purchasing power.
Other inflationary pressures persist
However, Rizal Commercial Banking Corp. chief economist Michael Ricafort on Tuesday, June 23, 2026, said other factors may continue to sustain inflationary pressures despite lower oil prices. While the drop in fuel prices is helping ease inflationary pressures, Ricafort noted, “there could be some stickiness in some parts of inflation, such as near record high US dollar/peso exchange rate back to 61.30 levels or higher by more than six percent since the start of the said war nearly four months ago that would lead to higher importation costs and overall inflation.”
At the start of the week, the peso weakened to the 61-level against the US dollar, partly due to hawkish signals from US Federal Reserve officials, with a potential rate hike seen around September or October this year.
El Niño and food prices
“El Niño drought risks until early 2027 could also lead to higher rice and other food prices, which could still lead to faster overall inflation than otherwise,” Ricafort said in a message to the Philippine News Agency.
Last week, the Bangko Sentral ng Pilipinas Monetary Board raised policy rates by 25 basis points to 4.75 percent for the Target Reverse Repurchase rate, citing persistent inflationary pressures. Inflation is expected to breach the four percent upper target band by next year.
Inflation projections and monetary policy
Monetary authorities now project average inflation at 6.4 percent this year and 4.5 percent next year. Earlier forecasts placed 2026 inflation at 6.3 percent and 2027 at 4.3 percent.
Ricafort said inflation averaging around six percent in 2026 could still warrant tighter monetary policy. “If inflation for 2026 could average at six percent levels, there would still be some need to tighten monetary policy/policy rates closer to six percent to better manage inflation and inflation expectations,” he said.
Global crude oil and BSP rate hikes
Ricafort added that easing global crude oil prices may support expectations of more moderate future BSP policy rate hikes. “Easing global crude oil prices would support the view of tempered +0.25 future BSP policy rate hike/s in the coming months to provide greater monetary policy stability,” he said.
Ricafort also noted that inflation could pick up later in 2026 due to drought risks and potential wage adjustments, while global monetary tightening trends may also influence local policy decisions. “As year-on-year inflation could still pick up in the coming months, especially in the latter part of 2026 in view of the El Niño drought risks and also any impact of higher wages later this year, more hawkish signals by most Fed officials recently could lead to possible Fed rate hikes in the coming months that could be matched by other global central banks to better manage healthy interest rate differentials,” he said.
