Philippines inflation inches up, with oil‑driven risks building

Higher food prices behind the pick-up in inflation in February

Headline CPI inflation in the Philippines rose to 2.4% year-on-year in February, broadly in line with expectations, up from 2.0% YoY in January.

• Food inflation, which accounts for roughly 38% of the CPI basket, remained the key driver, with its contribution rising to 0.7ppt from 0.4ppt in the previous month. Still, overall food inflation stayed contained at 1.8% YoY, supported by falling vegetable prices despite higher rice prices.
• Several categories posted inflation readings above the Bangko Sentral ng Pilipinas' (BSP) 4% upper‑end target. Notably, services inflation was elevated, led by restaurants and accommodation services at 4.3% YoY, and recreation and sports services at 4.1% YoY.
• Additional upward pressure came from housing, electricity and fuels, as well as health‑related services, which rose 3.2% YoY.

Overall, while headline inflation remains within the BSP’s 2-4% target band, the pickup in oil price inflation warrants monitoring, especially as the Philippines' retail fuel prices are market-linked.

Most exposed to higher oil prices, but the impact is manageable

The Philippines relies on the Middle East for almost 90% of its oil supply, making it one of the most vulnerable economies in the region to the ongoing supply disruption. Higher oil prices raise inflation both directly (fuel and transport) and indirectly (food and logistics).

Around a 20% increase in oil prices from February levels could add up to 0.8ppt to headline inflation if the increase is sustained and fully passed through to retail prices.

We think that if high oil prices persist, the government may revisit the TRAIN law provision that allows the automatic suspension of fuel excise taxes when global oil prices exceed USD 80/bbl – a mechanism previously used around 2018-2020.

Given this possibility that limits transmission to retail prices – and the higher oil prices likely seen as a temporary supply‑side shock by the BSP – we do not expect the central bank to respond to sustained higher oil prices with rate hikes. Instead, the growth drag from higher energy costs would increase the likelihood of another rate cut over the year.

PHP to remain weak

A 20% rise in oil prices could worsen the current account deficit by roughly 80bp. Even short‑lived oil price spikes can have an outsized impact on FX markets. For example, the brief oil surge in June 2025 was enough to weaken the Philippine peso, Korean won, Thai baht, and Japanese yen by 1.5-3%, despite the short duration of the conflict.

Given these dynamics, we maintain our forecast of around 59.0 for PHP/USD in 1Q26, with risks tilted toward modest further weakness should oil prices remain elevated.